Foster Swift Agricultural Law News
March 14, 2018
While every solar land use agreement can be unique, there are some considerations that are common to many of the agreements.
1. Window of Opportunity
One of the economic factors driving recent development of solar power projects is a federal tax break for solar photovoltaic systems. The tax incentives will begin a two-year phase out for systems installed after December 31, 2019. Thus, developers have a powerful economic incentive to bring solar photovoltaic systems to completion before the federal tax break expires.
2. Option to Lease
Solar Land Use Agreements are frequently presented as “options to lease.” For a modest payment, the solar company holds exclusive rights (but not the obligation) to lease the property. Usually the option extends for at least one year, but can provide for multiple years. If the land is subject to an option to lease, the land cannot be leased to another company and long ranging planning must include consideration of the possibility but the option will be exercised at any time within the term.
Most options either include a specific lease that will become effective upon exercise of the option or a statement of the most important terms that will be contained in the lease. Thus, it is important to negotiate the terms of the lease before granting the option.
Many leases and options to lease contain confidentiality clauses which apply to all terms of the agreements, including the financial terms and even the identity of the solar company. Thus, once an agreement containing a confidentiality clause is signed, telling your neighbors about the terms of the agreement could constitute a breach of contract.
Some leases contain exclusivity clauses that preclude the landowner from leasing other property to a competing solar energy company. Landowners with substantial acreage should consider requesting a limitation of the breadth of the geographic exclusivity.
5. Renewal Terms
Most leases have an initial term of ten to twenty-five years, that allows the solar company the right to terminate the lease early if the project proves to be economically unfeasible. These leases also often grant the solar company the option to renew the lease for several successive terms of five years. The combined renewal terms often equal the length of the original lease term.
6. Rent Escalation
Since a solar lease may extend for decades, it is important to provide a mechanism to make sure that the rent payments keep up with inflation. Many leases include a rent escalation provision that increases yearly rent by a certain percentage. If you are not comfortable with the rent escalation percentage, a land owner might consider tying the yearly increase to either the consumer price index or increases in power purchase contracts approved by the Michigan Public Service Commission.
Most landowners will want the lease to require the solar company to restore the property when the lease ends. These provisions should include removal of all equipment to at least plow depth and leaving the property free of any dangerous conditions created by the solar company.