Solar energy has become increasingly popular as a renewable and environmentally friendly source of power. Landowners lease their land for solar development to earn passive income through solar lease payments. But what is the impact of solar leases when considering the future sale of a property that was used as a solar farm?
Many landowners wonder what the installation of solar panels on their land will lead to. Homes with leased solar panels have become more valuable as potential buyers want to keep the solar project.
What is a Solar Lease?
A solar lease is between a property owner and an energy development company. The lease contract specifies the area of land allocated for the solar farm, the payment made to the landowner for leasing, the specific type of solar farm operational on the land, and the duration of the lease agreement. Landowners can greatly benefit from solar leasing especially if they are looking to make extra money off of their land that isn’t being used. The solar company prefers to lease land from landowners rather than purchasing land. This occurs because in the initial stage of the solar lease, developers dedicate a span of 2 to 5 years to examine the landscape, assess the viability of generating solar energy, and obtain the necessary authorization for their documentation.
At present, there is no construction happening, yet landowners continue to receive a predetermined payment as stipulated in the lease agreement. Furthermore, they retain the freedom to utilize their land in its current state.
Once everything is approved for the developers, construction for the leased solar panel system begins. During this construction, the landowner can no longer use their land that the solar panels will occupy. However, their lease payments will be raised to the higher agreed upon rate. The development phase will become the operational phase once the solar farm is built and active. The operational phase can last between 25 to 50 years with the option to be extended. During this active solar farm time, the rate for the lease payments will increase again to the agreed upon payments.
Several Factors to Consider When Selling Land with a Solar Farm
Lease Terms: The terms of the solar farm lease can have a significant impact on the property's marketability. Longer-term leases with favorable terms, such as high rental payments or escalations, may be viewed more positively by potential buyers.
Conversely, leases with onerous clauses or restrictions on property use could deter buyers.
Rental Income: Solar farm leases typically generate rental income for property owners. This income can increase the property's overall value and appeal to investors.
However, buyers may want to review the financial details of the lease to assess the income potential.
Land Use Restrictions: Solar farm leases often restrict the use of the land for other purposes during the lease term. Buyers who have other plans for the property may be hesitant if they are limited by these restrictions.
It's essential to clarify the extent of these restrictions and whether they can be modified or terminated.
Location and Market Demand: The location of the property and the demand for solar energy projects in the area can also impact its marketability.
Properties in regions with high solar energy potential and strong demand for renewable energy may be more attractive to buyers.
Buyer Preferences: Buyers have different preferences and priorities. Some may see a solar farm lease as an attractive income-generating opportunity, while others may prefer a property with more flexibility and fewer encumbrances.
It's important to target buyers who align with the property's characteristics.
Appraisal and Valuation: The presence of a solar farm and the terms of the lease can affect the property's appraisal and valuation.
An experienced appraiser should consider both the income generated from the lease and the impact on the property's market value.
Transferability of the Lease: Buyers will want to know whether the solar farm lease is transferable to the new property owner.
Some leases may allow for easy transfer, while others may have more stringent requirements or restrictions.
Legal and Regulatory Considerations: Local zoning regulations, permits, and environmental regulations can impact the property's ability to host a solar farm.
Buyers will want to ensure that the property complies with all relevant laws and regulations.
Landowners that are interested in having a solar energy system installed on their property should not worry about the land value decreasing. Landowners do not have to worry about any initial expenses and if they no longer desire the solar project on their land, the responsibility of removing it falls on the energy developers. LandGate provides landowners with the opportunity to list their land for free on a marketplace that has energy developers actively searching for land for energy projects! Discover your land's potential for all its natural and renewable resources to understand where your property’s hidden value is.