Solar farms: Key considerations for landowners and developers
27th May 2022
In this article, Kathryn Brook and Paul Dinning, specialist lawyers from Walker Morris’ Infrastructure & Energy team, highlight key areas that must be considered by landowners and developers respectively before entering into solar farm developments. This note is intended as a guide to facilitate initial discussions and negotiations between landowners and developers.
Why is this issue of interest and to whom?
Prompted by a growing global environmental conscience and fuelled by the current energy crisis, landowners and developers are increasingly keen to investigate the benefits of solar farming; a sustainable energy source which can provide a revenue stream. The following points represent some key considerations in relation to solar farm arrangements, to ensure they do not adversely affect the value of the landowner’s or developer’s investment.
- Timing: it is usual for a landowner to grant a developer an option over the land, which gives the developer a time frame to enter into the lease for the site whilst they evaluate the site and secure the necessary consents e.g. planning permission, grid connection, etc. How long will the option right exist and will the developer have an ability to extend the option period in certain situations, for instance, if planning permission is appealed?
- Crops: a developer will normally have the right to exercise the option at any point within a certain time frame. If a developer exercises their option during harvest season, what compensation, if any, will be payable to the landowner for crop loss? Will the compensation cover loss of profits which the landowner may suffer or should the option only be exercised postharvest?
- Equipment: the solar farm will require a significant amount of equipment, such as cables and machinery. Will this equipment be required to be installed within the proposed solar farm site or will it spread onto the landowner’s retained land? If the equipment goes beyond the solar farm site, what ancillary rights are needed over the landowner’s retained land and how much control should the landowner have in terms of location? Will any neighbouring land be affected, such that third party permissions and agreements need to be negotiated?
- Third party rights: the land may be subject to third party rights, for instance, rights of way, shooting or other sporting activities or the mines and minerals within the land may be owned by a third party. In these instances, the third party may need to provide consent and/or be party to the relevant agreements.
- Flexibility: the option agreement may afford the developer the right to exercise the option over only part of the land. In those circumstances, does the landowner need to impose specific requirements as to the part of the land to be used, for instance the size and location, to ensure its retained land is kept accessible and usable?
- Planning: can the landowner be required to consent to planning agreements at the time of the option when such agreements are not clear? What limitations should the landowner reasonably seek in order to do so? Is the landowner willing to carry out certain acts on the retained land, such as planting extra hedges in order to meet biodiversity net gain requirements and, if so, at whose cost?
- Reinstatement: the developer will have installed a significant amount of equipment in/around the land to facilitate the solar farm. What will happen to the equipment at the end of the lease term? How can reinstatement be guaranteed and on what terms? The landowner could be left with significant costs of reinstatement if the developer fails to remove the equipment and restore the land correctly.
- Tax: where the land is currently used for the purpose of an agricultural trade there are various tax implications which could result in the loss of tax reliefs. It is therefore important to seek tax advice before constructing the project. Please see our article Solar farms: tax considerations for landowners for more information.
What practical advice arises?
When granting solar farm options, landowners should be careful not to give rights which are too extensive to any developer, or tie up the land for more time than is necessary – at least not without receiving something adequate in return. Landowners should also be mindful of any potential losses that may arise due to the actions of the developer and should attempt to pre-emptively account for such eventualities within the contractual arrangements.
From a developer’s perspective, it is crucial that sufficient time is allowed within the option arrangements for proper evaluation of the land and for conducting potentially extensive due diligence (including obtaining a grid connection, planning permission, site surveys, etc). Developers will want to ensure, in advance of committing to the lease (and the associated rental payments), that there are no major physical or legal red flags which may hinder the ability to establish a solar farm.
In negotiating the lease, the parties need to work collaboratively to ensure the terms are sufficient to ensure the success, and fundability, of the project whilst preserving the long term value and condition of the land for when it is returned to the landowner. Finding a balance to secure both parties’ interests in the project is a fine art that requires specialist advice and support.
How we can help
This article highlights only some of the issues that need to be negotiated between the parties, and then documented within the contractual arrangements. It is not intended to be an exhaustive list of the points which landowners and developers need to consider. Negotiations, and legal and practical advice, will very much depend on the parties and the specific site in question.
Walker Morris’ Infrastructure & Energy team can offer tailored advice to support both landowners and developers with solar projects, in particular with the negotiation and documentation of land and commercial arrangements. With extensive experience advising both landowner clients and developer clients, we are well placed to facilitate outcomes which strike a balance between suitably protecting and preserving landowners’ interests and uses (during and post-project), and the commercial and financing requirements of developers.
For further advice or information in relation to solar farm developments, or development site issues more generally, please contact Kathryn or Paul, who will be very happy to help.