Have you received an offer from an energy developer to lease your land for a wind 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.
Key Takeaways:
Wind leases are long-term agreements that can last 20-50 years, often with initial 2-5 year option periods and possible extensions in 5-10 year increments.
Compensation from wind developers can include lease payments per acre or turbine, and possibly royalties. It's crucial to define the base for royalty calculations clearly.
Lease payments may include escalators (typically 1-3%) to adjust for inflation, which may not always align with current inflation rates.
Developers often seek to maximize land covered by the agreement to ensure project flexibility, while landowners may prefer to limit affected land to retain other usage rights.
Lease agreements should specify usage rights, allowing landowners to continue certain activities like farming or mining, as turbines occupy minimal land space.
Tax obligations should be clearly defined, covering real and personal property taxes and taxes related to electricity generation, with the potential for negotiation on who pays increased taxes due to property improvements.
Duration of the Wind Lease
Wind leases are long-term agreements between a landowner and a wind energy developer. The duration of a wind 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 wind farm interfere with these plans?
Due to the long-term nature of wind leases, it is extremely important that landowners conduct their own 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 wind developer to build turbines on your property, they will pay you lease payments. Wind farm lease payments can be paid on a per acre or per turbine basis, and/or with royalties. The amount of these payments is impacted by a variety of different factors.
If royalty payments are offered, you should be careful to ensure that the base amount for the royalty calculation (usually gross revenues) is clearly identified and defined in the contract. Before entering into negotiations, you should also consider familiarizing yourself with the investment and cash flow projections for the planned wind project, as this can impact the amount of compensation you can expect from the wind developer.
In some instances, developers will offer additional payments to landowners for the right to build improvements other than turbines on the property (such as substations or roads). These agreements can be confusing, because the additional payments are usually made in these cases only if the improvements are actually built, something typically left to the developer’s discretion.
Wind 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 wind lease agreement escalators do not align with inflation rates, which is why many landowners sell their wind lease payments for a lump sum up front.
Scope of Land Subject to the Agreement
When negotiating land agreements during the development process, wind 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 wind speed and flow over turbines.
On the other hand, landowners are usually motivated to limit the land affected by wind agreements to retain control over non-wind-related uses and leasing opportunities. Therefore, careful consideration and negotiation of the land subject to agreements is crucial early in the process.
Land Usage During the Lease
For land lease agreements to function effectively, they should provide detailed guidelines for land usage. Developers will likely want to gather wind data, conduct environmental tests, construct access roads, install electric lines, and perform other activities related to electricity generation and transmission.
Landowners should also clarify their rights to use the land, including activities such as planting crops, raising livestock, mining resources, harvesting timber, hunting, and property inspection. Most of the time, landowners can still use their land during wind leases since the wind turbines take up a relatively small amount of land and are spread far apart from each other.
In some instances, developers will offer additional payments to landowners for the right to build improvements other than turbines on the property (such as substations or roads). They may also offer payments for wind easements.
Taxes
The lease agreement should clearly outline the obligations of both parties regarding the payment of various taxes. This includes real property taxes, personal property taxes, as well as taxes related to the generation or sale of electricity. By default, property taxes are typically the responsibility of the landowner, although this can be subject to negotiation.
Additionally, some agreements may require the developer to cover any increases in taxes resulting from improvements or changes in the property's use due to the wind power development.
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 wind farm in our free property report and list for free today:
