What to consider when faced with a Solar Farm development proposal
What to consider when faced with a Solar Farm Proposal
Some of our landowning clients have recently been approached by Solar Farm Operators with a view to entering into a commercial agreement to develop a Solar Farm or Parks on their lands. This is a very specific area of both contract law and land law that requires both accountancy in respect of taxation and farm payments and specialised legal advice.
Firstly the documents that are generally being put before our clients are as follows –
The option agreements firstly give the solar farm developers the option to develop on the lands (Optioned Lands) over a period of 2-7 years. This agreement will allow the developer during that period to enter into the land and conduct the necessary assessments to view the sustainability and prospects for a successful solar farm on that site. It also allows the developer to then apply for planning permission during that period.
The option agreement will generally allow for payments to be made to the land owner each year. Sometimes these payments increase during the term. There then can be a final payment made if planning is granted.
The option agreement will generally allow the landowner during the period of the agreement to use the Optioned Lands for farming, forestry, turf cutting and sporting activities and other normal rural and domestic uses, provided such uses or activities do not prejudicially affect the developers rights. It also however can prohibit the landowner from doing certain things such as develop forestry within a certain area – which needless to say could hamper the solar potential of the land.
The Agreement will also grant the right during the Option Period for the developer and/or his agents and licencees to enter the Optioned Lands, with or without vehicles at all times for the purpose of investigating the possibility of producing electricity with solar panels on the Optioned Lands as well as the right during the Option Period to bring on to the Optioned Lands and to lay and affix such equipment as may be necessary for the carrying out of all relevant investigations and applications for permission on, under and over the Optioned Lands including the excavation of trial pits to test ground conditions and the installation of pyranometers to measure solar irradiation. This needs careful consideration for the future use then of the land if the development does not go ahead.
When reviewing both the option agreement and the draft lease one should also deal with –
a) Ensuring all adequate insurances are in place during the investigation and development works on the land
b) Ensuring if a bond will be put in place to cover removal / decommissioning works in the event of the lease prematurely ending.
c) Ensuring confirmation of the exact location of where a substation and any other buildings are envisaged.
d) Confirmation of where the battery storage will be placed on the land.
Very importantly the landowner should seek advice on the rights of way required over their own adjoining lands and potentially the obligation to assist the developer obtain rights over adjoining landowners lands known as ‘proximity consent’ clauses.
These clauses ensure the landowner agrees to assist the developer in obtaining a letter of consent and/or grant of right of way/wayleave executed in favour of the developer by those surrounding landowners as identified by the developer whose consent is required to the installation of solar panels upon the Optioned Lands and/or through whose lands a right of way /way leave is required in respect of all easements, rights and privileges necessary for the operation of the solar panels upon the Optioned Lands. Very careful consideration needs to be given to this as it potentially can cause neighbour issues in the future for the landowners.
These agreements will also then recite the lease which the landowner will enter into when the option agreement terminates, if planning is granted.
Careful consideration needs to be given as to whether the option agreement and subsequent lease will inhibit the landowner from receiving farm payments and advice must be sought in that regard. Furthermore inheritance and succession planning advice should be sought as there now will be a significant burden on the lands. Finally if the lands are mortgaged then the banks consent is required.
2.Draft long Lease
The draft lease will usually be provided at this point also however it can be negotiated right up to the time of signing and does not have to be signed at the time of signing the option agreement so careful consideration is needed here.
The long lease (25-35 years) will include all the usual provisions of such a lease in addition to aspects such as how the land can be used by the landowner during that period, access rights, easements to be created over adjoining lands etc. It sets out the obligations by both parties, the rent to the paid, the lands to be leases (by reference to a map) and the easements required and agreed.
Finally it is very important also to ensure a Deed of Renunciation is sought as otherwise the 35 year lease could grant rights to the developer beyond the expiry of the lease – importantly an automatic right to a long lease.
3.Lender Direct Agreements
Finally we have seen recently developers are also providing lender agreements to our clients which will bind our clients to the developers lender if the developers interests are taken over by a lender.
A Lender Direct Agreement is a three way agreement with the lender funding the project which allows the lender to “step in” in place of the developer if there is a breach of the terms of the property agreement by the developer.
Important consideration needs to be given to this as the landowner will then have a legal agreement with a lending institution in place of the developer which may result in a very different relationship. That lender might not be a main stream local bank but could be from anywhere in the World and may deal with the overall nature of the transaction very differently.
Finally the important point to note is to always seek legal and accountancy advice with these agreements. They may seem attractive from the outset particularly for poor quality redundant lands however they are technical in nature and needs professional advice.
Some articles of interest may be found at -