When a solar farm or wind farm proponent knocks on the door of a farmer or grazier, it usually asks the landowner to grant an option for a long-term lease. When the initial option period, which the proponent uses to complete investigations and obtain project approvals, is considered in addition to the term and option term of the subsequent lease, the landowner is being asked to lock in the details of an arrangement that could last 60 years or more. Peering this far into the future is inherently difficult, but here are five mistakes to avoid.
- Failing to ask, “what’s in the investigation phase for me?”
A project proponent in the initial phase of a wind farm or solar farm’s life rarely wants to pay much in exchange for the grant of an option. Instead, its promises to a landowner are rich rewards if the initial investigations establish the project’s viability, the option is exercised and the project beings to generate electricity.
However, to justify the cost of the investigations, a project proponent will usually want to lock competing projects out of the location and will therefore expect an exclusivity commitment from the landowners involved at the outset.
The potential costs to landowners of giving exclusivity commitments are two-fold: the impact on their bargaining power as the finer terms of long-term arrangements are negotiated in the absence of competition and the opportunity cost of missing out on whatever competitors might otherwise offer.
Landowners should therefore expect a reward for their exclusivity commitments—the longer the exclusivity period, the greater the reward.
(Photograph by Ann Britton)
- Missing the opportunity to direct payments
In the ordinary course, rents for solar farms and wind farms will be directed to the registered owners of the underlying land. Sometimes, this will not suit a landowner’s longer-term succession or taxation planning objectives.
If those objectives are considered and addressed at the outset, there are mechanisms available to direct the rent payments to other individuals or entities.
- Giving away flexibility
Soon enough in initial investigations, a landowner will be presented with maps showing the proposed project infrastructure and accompanying predictions about the likely revenue stream.
Much of a landowner’s view on the attractiveness of the project will turn on an assessment of how the project infrastructure will impact on the landowner’s current and possible future uses of the property.
Often though there is devil in the detail of proposed agreements. The early maps are usually nothing more than “indicative” and a project proponent, to make the project “bankable”, might propose almost limitless flexibility to put whatever infrastructure it desires anywhere on the property and to change it at any time.
If this flexibility is at odds with the landowner’s own plans for the property (or a future owner’s likely plans), it should be reined in, or the project proponent asked to pay extra for it.
- Assuming everything will go to plan
Good agreements with renewable energy project proponents address responsibility for unexpected consequences. They include increases in property outgoings (such as Council rates) attributable to the project at any stage of its long life, responsibility for legal claims connected with the project activities or infrastructure, or the failure of the project proponent to decommission and rehabilitee the site at the end of the term.
Even better agreements will also address the question, “what if the project proponent refuses to honour its promises or does not have the financial capacity to do so at the relevant time?”
- Failing to preserve the landowner’s rights
The legal nature of a lease grants exclusive possession of the defined premises to the tenant. Any rights the landowner is to retain to use the underlying land, for example, to graze livestock around wind turbines or solar panels, therefore need to be set out in the lease.
A landowner should also consider carefully and proposed restrictions on their future dealings with the property. A project proponent should not be given rights that would allow it to unnecessarily interfere with a future sale of the property, for instance. Similarly, the restrictions on the landowner when mortgaging or leasing the property or dealing with resource tenement holders or compulsory acquisitions in the future so go no further than to protect (rather than enhance) the renewable energy project proponent’s interests in those scenarios.
Great outcomes can be achieved when landowners are approached for land access by a renewable energy project proponent, principally because each party initially has equal bargaining power. If an agreement on mutually acceptable terms cannot be reached, either party can walk away.
Thynne + Macartney assists landowners to make the most of the opportunity.
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