Solar Farm Leases: Too good to be true?

Solar Farm Leases

More than a few of my clients have been approached by various companies about leasing their farmland for solar development.  The companies are offering four to six times the amount per acre as an owner could receive leasing the land for farming.  When the companies bring their “offer” to the table, often in the form of an option to lease, it comes with strings attached.  I have reviewed several offers that solar lease companies have presented, and my concerns with the proposed options and/or lease agreements follow:

  1. Property Taxes. Farmland is classified as agricultural land which has several benefits.  One benefit is when farmland is transferred from one owner to another, it is exempt from uncapping.  Another benefit is that it is exempt from the local school operating millage on annual property taxes.  If a solar farm is placed on a landowner’s land, the property will likely no longer be able to be classified as agricultural land.  For property owners, this could mean an immediate uncapping, an increase to property taxes because of the loss of the agricultural exemption, and for some, a recapture tax to be assessed.  It’s important that a solar lease clearly define who pays for all potential increases to property taxes.
  2. If farmland is enrolled in the Farmland Preservation Program (PA116), it will complicate a landowner’s ability to enter into a solar lease.  Owners whose land is enrolled in the PA116 program are permitted to place solar panels on their property in certain circumstances by amending their current PA116 agreement.  The terms of the amended agreement include: the owner has to agree not to claim PA116 credits during the period when solar panels are placed on the property, the drainage needs to be maintained on the property, and the landowner will remain liable for clean up of the solar panels.
  3. Crop or Property Damage. During the initial investigation period, called the “option” or “due diligence” period, the solar companies the right to enter onto the leased property.  When investigating the property, it is possible that the company could cause crop damage or other damage to the property.  Additionally, it’s possible the company starts construction mid-year, damaging that year’s crop.  Potential for crop damage, tile damage, and other property damage during the solar lease term needs to be specifically addressed.
  4. If a solar company does place a solar farm on a landowner’s property it is possible that the company will not remove the equipment from the property or will fail to restore the property to its original condition.  Cleanup, along with a mechanism to help with cleanup if the company goes bankrupt, such as a bond, needs to be addressed in a solar lease agreement.

There are numerous other concerns I have about the proposed solar farm lease agreements.  It is important that landowners negotiate the terms of their lease to protect them from the concern’s solar development poses.  The lease terms are often very long, 35 years or more, and the landowner could be stuck with the lease terms for years to come.  Landowners should have any proposed option or lease agreement reviewed by an attorney before signing.