By Tony Giunta, PG, Director of Project Development
For those living in congested areas throughout New England, it’s hard to imagine that only a few short decades ago most of the Northeast was mainly farmland. Although some local farms have managed to survive, for the most part large open acreage landowners have only been able to preserve their undeveloped parcels by either receiving conservation grants or by taking advantage of special property tax exemptions.
A relatively new opportunity has now come before many of these large acreage open field landholders in the form of renewable energy land leases. If you fall into this category and have been approached by a renewable energy developer offering a lease option to develop a project on your land, here are a few tips to consider before you sign on the bottom line.
Give yourself an out. Realize that before you see any solar panels or wind turbines on your property, renewable energy projects take time to get through the many hoops associated with their development. In most cases, you won’t be offered any lease payments until the project moves to “Notice to Proceed” or “NTP”. The reason for this is even though no physical activity is taking place on your fields, the developer is spending significant amounts of capital to secure those all-important permits. That said, if your project hasn’t received NTP after two years, then it probably never will. Whatever that mutually agreed upon drop dead date is, insist upon language that makes the contract “null and void” should that date come and go without an NTP or the developer must begin lease payments regardless of where they are in the permitting process.
Make crystal clear who’s responsible for taxes. Your renewable energy project will undoubtedly increase your property tax assessment (and in some cases significantly so). Most developers will assume responsibility for any additional tax burden levied by the taxing authority. Ensure it’s clear you, the property owner, will only be responsible for paying a pre-determined tax amount. Also spell out what occurs should the lessee default on their tax payment. Remember, you’re the property owner and YOU are always responsible for paying your tax bill regardless of whether or not your lessee pays you the agreed upon amount. Ensure legal mechanisms are in place for you to be able to recover your money quickly should a default occur.
Returning the site back to original condition. Although lease agreements typically run 20 to 30 years, there will come a time when all that infrastructure will need to go. Your lease agreement should clearly state the lessee is fully responsible for all costs and labor associated with restoring your property back to its original pre-existing condition. There should also be language stating from where those reserved decommissioning funds will be derived (i.e. bond, escrow account, etc.).
A plug for lawyers. Finally, spend the upfront money and have an experienced renewable energy land-lease attorney review your lease agreement before you ever place your John Hancock on the dotted line. It will be money well spent and, in many instances, you may even get the energy developer to reimburse you for those legal expenses.
Now that all your “t’s” are crossed and your “i’s” are dotted, feel confident that you (and your heirs) can go forth and produce renewable energy without having to deal with contractual nightmares years down the road.