Wind turbine lease considerations for landowners
By: Danelle E. Harrington
Wind energy continues to be a controversial topic. This article focuses on providing landowners who are approached by wind developers with information about wind energy so they can make informed decisions about entering into agreements with such developers. Wind developers are typically approaching land owners to obtain the rights to lease property in the future. When the developer brings their “offer” to the table 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 20 years or more. The companies will often portray that the contract as “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 to negotiate the terms of the agreement.
I have reviewed several offers that wind energy companies have presented, and my concerns with the proposed options and/or lease agreements follow:
- Rights Given and Retained. Developers seek exclusive control over large tracts of land. In most cases, the landowner does not really want to give up the degree of control sought by the developer. Careful negotiation means including exactly what uses you want to retain as part of the written lease agreement. This may include the ability to farm the land, hunt or conduct other recreational activity, build or develop structures, whether commercial or residential, and the ability to enter into other leases, such as oil, gas and other minerals, telecommunication towers, etc.
- An Exit Strategy. A Wind Farm will likely be a million-dollar project that a developer will need to obtain financing for. It is important to understand your rights in this process. What happens if they default on their obligations to creditors, or on their obligation to complete the process and to pay you? The lease should contain a statement that the developer covenants to keep the land free from mechanics or other liens of any kind and will promptly take all proper steps to remove any such lien that arises from their activities. A well written lease should also contain provisions which cover what will happen at the end of the lease. There should be provisions for decommissioning or removal of all towers and equipment and leaving the land as they found it. There should be a fund or a bond posted for ensuring that this gets done.
- Crop or Property Damage. Similarly, the potential for crop, tile, or other property damage needs to be addressed. There should be language requiring the developer to restore the property to the same, or better condition as it was before they used the property. There should also be a specific method addressed for determining the value of any destroyed crops.
There are numerous other concerns I have about the proposed wind energy lease agreements. It is important that landowners negotiate the terms of their lease to protect them from the concerns wind development poses. Landowners should have any proposed option or lease agreement reviewed by an attorney before signing.
Danelle E. Harrington and Sharon A. Burgess practice in the areas of probate/estate planning, business transactions and succession planning, and real estate transactions at SMITH BOVILL, P.C. Her articles are intended to introduce various issues arising within these fields of practice and are not intended to replace individual legal advice. If you have questions, please contact Danelle or Sharon at one of the firm’s two convenient office locations in Frankenmuth and Saginaw.