Solar Energy Leases
Spurred by federal, state, local, and utility incentives and the continuing emphasis on green energy, solar energy entities are building solar farms throughout the United States. These solar farms can take many forms. The most common is the PV or photovoltaic solar farm that consists of hundreds or even thousands of solar panels mounted on large racks. These panels contain photovoltaic cells that convert the sun’s light directly into electricity.
Solar Energy Farms
A PV solar farm can range from a few acres to hundreds of acres and is typically built on open unimproved land, often farmland. When identifying and selecting a site, solar energy companies will evaluate several key factors including topography, the proximity of the site to electric power substations and transmission lines, access to water, and local land use and zoning regulations.
Typically, a solar energy entity will propose, perhaps unexpectedly to the landowner, a lease or a pre-lease option that has a lengthy due diligence period. Compensation to the landowner during this due diligence period is often nominal, yet it is coupled with a commitment by the landowner to deal exclusively with the proposed tenant. Nevertheless, if the results of the due diligence period are satisfactory, the lease term could then extend 30 to 40 years or even longer at a rental rate per acre that is subject to escalation, resulting in long-term substantial passive income to the landowner.
What Landlords Should Know
As with most transactions, however, the landowner must be cautious. The leases proposed by the solar energy companies often contain many pages of detailed provisions ranging from access to insurance to roll back taxes. The lack of a proper review and understanding of these provisions can result in major difficulties. For more information, read our prior blog post, “Solar Energy Lease – What Landlords Should Know.”