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What to Consider When Negotiating a Solar Farm Lease

Updated: Apr 16


photograph of solar panels with a sunset and trees in the background

Have you received an offer from a solar energy developer to lease your land for a solar farm? Congrats! This is an exciting opportunity to potentially secure a steady source of income for many years to come. However, before you sign on the dotted line, there are several important factors that you should carefully consider.




Duration of the Solar Lease


Solar leases are long-term agreements between a landowner and a solar energy developer. The duration of a solar lease can range anywhere from 20-50 years, excluding the initial 2-5 year option period. Each agreement should specify its term length along with any options to extend the lease. Most options to extend are offered in 5 or 10-year increments. It is important to carefully consider the duration of the lease and how it will impact your land use options in the future.

Some key questions to ask yourself include:

  • Are there any long-term plans or developments that I have for my land?

  • If so, will the solar farm interfere with these plans?

Due to the long-term nature of solar leases, landowners must conduct their due diligence and consult with a licensed attorney. LandGate cannot provide legal advice or help you conduct due diligence, but we can refer you to one of our attorney partners.


Compensation


In exchange for allowing a solar developer to build solar panels on your property, they will pay you lease payments. Solar farm lease payments are generally offered at a per acre per year rate. The amount of these payments is impacted by a variety of different factors, including the amount of land that you are willing to lease, the solar company itself, competition in your local area among solar developers, and more. Solar lease payments generally range from $700-2,000 per acre per year. Before entering into negotiations, you should consider familiarizing yourself with the investment and cash flow projections for the planned solar project, as this can impact the amount of compensation you can expect from the solar developer.


In some instances, developers will offer additional payments to landowners for the right to build improvements other than the solar panels on the property (such as substations, transmission lines, or roads). These agreements can be confusing because the additional payments are usually made in these cases only if the improvements are built, something typically left to the developer’s discretion.


Solar farm lease payments generally include escalators (typically 1-3%) to adjust for inflation. Along with ensuring that your lease offer has an escalator, you should consider current inflation rates and how that aligns with your escalator percentage offer. Most solar lease agreement escalators do not align with inflation rates, which is why many landowners sell their solar lease payments for a lump sum upfront.





Scope of Land Subject to the Agreement


When negotiating lease agreements during the development process, solar developers typically aim to maximize the property covered by the agreement to maintain flexibility in project layout and design. They also seek to prevent any obstructions that could interfere with the amount of sunlight reaching the panels. On the other hand, landowners are usually motivated to limit the land affected by solar lease agreements to retain control over non-solar-related uses and leasing opportunities. Therefore, careful consideration and negotiation of the land subject to the lease agreement is crucial early in the process.


Land Usage During the Solar Lease


To ensure the effective functioning of solar lease agreements, it is imperative to include comprehensive guidelines for land usage. Developers typically need to collect solar irradiance data, conduct environmental tests, build access roads, install electric lines, and undertake other activities related to electricity generation and transmission.


Additionally, landowners should clarify their rights to utilize the land for activities such as crop cultivation, livestock rearing, resource mining, timber harvesting, hunting, and/ or property inspection. It is worth mentioning that, in most cases, landowners can still utilize a portion of their land during solar leases, subject to the terms of the agreement. It is important to note that the expansive area occupied by the solar panels may impose limitations on land usage.


Taxes


The solar lease agreement should clearly outline the tax obligations of both parties. This includes real property and personal property taxes, as well as taxes related to electricity generation or sale. Property taxes are typically the responsibility of the landowner, but this can be negotiated. The developer may also cover tax increases due to improvements or changes in property use.


Are you interested in leasing your land for a wind farm? LandGate can help! Learn how much you can make by leasing land for a solar farm in our free property report and list for free today:




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