By: Danelle E. Harrington
Several of my clients have been approached by various companies about leasing their farmland for solar development. The companies are offering approximately $800 per acre, or more in some cases, to lease land for the purpose of placing “solar farms” on the property. When the companies bring their “offer” to the table, often in the form of an option to lease, it comes with strings attached. They often want the landowner to agree to the terms of a potential lease agreement, that the owner could be stuck with for 35 years or more. The companies will often portray that the contract is “boilerplate” and nonnegotiable. But, landowners do not have to sign the option or lease agreement the way it is written and at least have some leverage if they really want to put a solar farm on the property.
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 no longer be able to be classified as agricultural land. For some owners, this could mean an immediate uncapping of the land and a recapture tax to be assessed. For all owners, it will mean an increase in annual property taxes and an uncapping of the land if it is transferred to a new owner.
2. PA116. If farmland is enrolled in the Farmland Preservation Program (PA116), it will no longer be eligible for the program if a solar farm is placed on the property. This means landowners will be forced to pull their property out of the PA116 program. Taking land out of the PA116 program has two consequences. First, owners will no longer be eligible to receive the income tax credits for that property. Second, owners will have to repay the last 7 years of tax credits received on the property or else a lien will be placed on the property.
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. Similarly, if they do actually place a solar farm on the 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.
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 concerns solar development poses. Landowners should have any proposed option or lease agreement reviewed by an attorney before signing.
By: Danelle E. Harrington