Are you thinking of leasing your land to a wind farm developer? It can be a very profitable use of land, especially land that may not otherwise be producing a lot if income but be aware – the lease that you will be required to enter into will impose many obligations upon you the landowner. These obligations will have implications regarding how you can farm the land and perhaps even the lands surrounding the leased lands for the duration of the lease.
There are usually two documents which a landowner will be asked to sign, an option agreement and a lease.
What you need to know before signing an option agreement:
It is a legally binding document
The option is usually granted for a terms of five to seven years.
With a right in favour of the developer to re-new the option agreement for a further five years
It allows the developer to enter the landowner’s land to carry out research including environmental impact studies which will be required for planning applications.
And lay equipment and excavate trial pits to test ground conditions
The option agreement gives the developer the option to require the landowner to entire into a pre-agreed lease.
A payment is made to the landowner for granting the option
What you need to consider:
In addition to the amount of the payment offered to grant the option, other considerations are:
In the event of renewal of the option agreement, is there provision for a further payment?
Will the developer cover the cost of the landowner’s legal fees?
Usually the option agreement will allow transfer or assignment of the agreement by the developer – will the landowner receive prior notification of any such transfer and will their consent be required?
Access – will prior notification be given to the landowner, when access on the lands is required?
Will borrow pits be located on the optioned land only or anywhere on the landowner’s land?
Does the developer covenant to remove all equipment and return the land to its former agricultural state and condition?
Finally, as the option agreement can tie the landowner to a long term lease the terms of the lease should be negotiated when the option agreement is being negotiated.
Beware!
Covenants made by the landowner in the option agreement:
To register the Option agreement with the land registry
Not to object to any planning application or concur with anyone else in objecting to the planning application.
Not to build anything on the land the subject of the option agreement
Give prior written notification of any proposed sale of transfer of the land
Farming may be continued as long as it does not interfere with the developer’s rights under the option agreement,
The Lease:
Usually for a term of between 25 and 35 years
With an option to re-new
Which allows for an initial construction disturbance payment when the windmills are being constructed and then an annual payment of rent once the sale of electricity commences.
Access:
Very often the land is located down a country road or lane which is not in charge of the local authority. The lease will result in increased traffic on the road, particularly heavy machinery and therefore increased wear and tear. Will the developer agree to make good any damage caused to the road and re-instate it to original condition?
What to look out for?
Be clear on the exact area of land being leased, the location of the windmill and the route of access to the windmill
Is land being included to provide access to solar farms on adjoining landowners’ land?
Will there be an electricity substation erected – if so the area of ground upon which it is located will have to be transferred outright.
How much interference can the landowner expect in respect of the remainder of his lands?
Will the ground be re-instated to allow for normal agricultural use on expiration?
Will landowner's legal fees be covered?
Will landowner’s agricultural advisors fee be covered?
Will the landowner compensate for loss of state and eu funded schemes?
The rent should be linked to the consumer price index
Tax Implications:
Generally, the income will be subject to income tax but the availability of retirement relief from CGT and agricultural relief from CAT will not be affected unless more than half of the land is occupied by the solar panels.