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As large-scale solar and battery projects gain popularity, more and more landowners are being approached by companies who wish to take out option and lease agreements across their land. Documentation from each company will vary, with some heads of terms being very comprehensive, whilst others are a little more simplistic. Given the number of projects that have popped up in our region, we have put together some pointers on some of the less common factors people need to give thought to before entering into an agreement with a developer.
Most developers will request an initial exclusivity period where the landowner agrees not to engage with any other party whilst the developer confirms grid connection and carries out an initial planning assessment. Thought should be given to the length of this exclusivity period and what surveys, if any, the developer may undertake during that time.
Whilst the prospect of generating renewable energy can be exciting, it is important to consider any existing agreements that you have entered your land into, and the limitations associated with these. With the decline in Basic Payment Scheme payments, more landowners have turned to Countryside Stewardship and the Sustainable Farming Incentive to supplement their income. However, these schemes come with a 3 or 5-year term respectively. It is therefore important to consider the timeframes for each stage of the project – will the solar tenant have achieved planning permission before the end of your land management scheme? Will they be prepared to compensate you if this is the case? Environmental schemes may place limits on the surveys that the solar tenant can do, as you don’t want to be penalised by the Rural Payments Agency because the solar tenant has dug a soil sample out of your flower-rich margins!
There will also be restrictions relating to existing tenancies on the land. It is important to check the termination provisions of such agreements and whether compensation may need to be paid to the existing tenant if the option agreement is acted on during the term of their tenancy.
There is great variation across the board in the value of option agreement payments and lease rents. Additionally, some solar companies will offer a lower rent for a lease but with extra one-off payments. It is important to consider the long-term income potential before deciding whether to take one-off payments or a higher long-term rent.
Solar companies are keen to fix their lease rents for the long term and may try to cap rent reviews in the heads of terms. It is usual to see rent reviews in line with an index, such as Consumer Price Index, but recent high inflation has seen some solar companies try to cap the increases to a certain percentage per year. It is often possible to negotiate at the heads of terms stage.
Decommissioning the site at the end of the lease comes at a cost to the solar company and therefore must be budgeted for. A landowner must ensure funds are set aside so a tenant doesn’t disappear at the end of the lease, leaving the landowner to clear up. Most leases include terms for a ‘decommissioning bond’, under which money is set aside annually by the solar company so that money is available for decommissioning when the time comes. The earlier this payment begins, the less risk to a landlord that they will be left with an issue at the end of the lease. It is also important that the lease includes provision for regular reviews of the bond amount to ensure adequate funds will be held at the end of the lease.
Generally, the developer will cover the landowner’s reasonable legal and surveyor’s fees. However, they will often put a cap on that amount. It is important to ensure the cap is at a suitably high level to cover all your costs up to and including the signing of the lease. The developer should also give an undertaking to cover these costs should the transaction fail to complete, other than where the landowner has acted unreasonably.
As a landowner, it is important to get the best deal as possible, but it can be difficult to see the next steps when looking at pages of legal jargon. If you would like more information on how we can help you to negotiate a solar agreement, please contact our Rural Team on 01234 352201.
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