As the alternate energy search continues away from fossil fuels, farmers will increasingly be approached to lease land for solar panels. As the lease granted to the solar company will have legal implications for the farmer/lessor, it is imperative that farmers consult their solicitor before entering into any lease agreement.
The prospect of leasing part of a farmland for solar development might appear attractive from an income point of view, however the Lease will create conditions that need careful scrutiny.
These may vary but in general they could contain the following:
Heads of Agreement/Exclusivity Agreement: This is self-explanatory but initially the solar company will conduct a feasibility study to ensure that the solar panels on that land will be commercial. They will want a preliminary agreement which will most likely contain an exclusivity clause where the farmer/lessor cannot engage with any other solar company. This agreement will be of a short duration. If the solar company are not happy with the findings of the feasibility study, then this will conclude the agreement between the parties. The farmer will usually get a small fee for signing this preliminary agreement.
During this period, the farmer will be required to allow access to the land to conduct the feasibility study.
Option Agreement: If the feasibility study is positive then the solar company will seek an option for a long lease to exploit the solar energy. The duration of the lease can be a matter of negotiation between the parties, but the solar company will be looking at a long term. Technically the Option Agreement and the Lease are separate, but they are often negotiated together.
The farmer should not attempt to negotiate these agreements without their solicitor.
The Lease – Main Agreement:
This can be a mine field for the lay person so the farmer’s solicitor can guide the farmer through it for his benefit.
If the farmer has an existing right of way on his land the subject matter of the proposed lease, then it is important that the lease respects that.
Provision should be made where the solar company goes into liquidation, here the farmer needs to know what will happen in such a scenario. The lease needs to provide what happens at the end of the lease where there is no extension, and the farmer wants his land back for farming.
The lease should provide what rights the farmer/lessor has where the lease terms are broken by the solar company.
Financial Benefit to Farmers
The lease figure for the land will be negotiated between the parties. The companies pay per acre leased. The amount paid can vary according to a variety of factors and is usually calculated per acre. It is typically between €1,000 to €10,000 per acre.
The farmer’s accountant and solicitor can advise on tax relief under the Capital Acquisitions Tax for agriculture relief.
Here tax advice is important, for example where a parent is handing the farm to his children, retirement relief can be explored to avoid capital gains tax on the transfer of the farm which will include the land leased to the solar company.
Because of the long-term commitment that the solar lease creates, before entering into any agreement for solar farming advice from your tax adviser and solicitor is crucial.