If you own a large parcel of land anywhere in New Hampshire, at some point you may be approached by a solar farm developer offering you a long-term land lease. Solar farm developers look for large parcels of land, such as former farms or timber tracts, along major utility corridors for possible development. As a landowner, there may be multiple benefits to entering into such a land lease, but there are also possible drawbacks to consider.
On some occasions, the developer will offer to purchase the property outright, but far more often the developer will offer a long-term land lease. This means that the landowner would still own the property, but it would be subject to a lease which may last 20 to 30 years.
What to expect from a solar land lease project
Typically, a solar land lease is structured in several phases. First, there will be a due diligence period which may last several years. During due diligence, the developer will conduct surveys, soil testing, environmental assessments, and other investigations to determine if the site is suitable for a solar farm project. The developer will also pursue government approvals and permits for the project.
If all goes well during due diligence, the lease will then move to construction. The construction phase will have the most impact on the property as there will be heavy construction vehicles, equipment, and work crews coming and going. The project will include the large solar panels that we are all now familiar with, as well as substations, power lines, access roads, and other supporting infrastructure. Fortunately, construction should not take too long, and the lease will then move to the next phase: operations.
During the operations phase, the solar project will be up and running producing electric power. This is the longest phase of the lease and may last for several decades. This is also the most valuable part of the lease with the highest rent payments.
The final phase of a solar land lease is decommissioning. At the end of the lease, the solar project will be disassembled and removed from the property and the land will be returned to a reasonably natural state.
The benefits and drawbacks of a solar land lease
Some of the benefits of a solar land lease or obvious. It allows a landowner to take an otherwise unproductive tract of land and turn it into an income-producing leasehold. All of the due diligence, construction, and operating costs will be paid by the solar developer.
The developer should also pay the property taxes for the land on which the project is located. This is especially important as commercial use such as a solar farm may be taxed at a much higher rate than vacant or agricultural land.
The long-term length of the lease could be a benefit or a drawback, depending on how you look at it. On the one hand, it creates a steady stream of income over a long period. On the other, it prevents you from using the property for any other purpose for many decades.
The landowner will not own the solar power equipment, so the landowner will typically not share in any tax benefits that may be available. Also, the rental rate should include an appropriate increase over time to account for inflation.
A landowner must also be aware that there is no guarantee that the project will ever move to the operations phase. During due diligence, the developer has the right to terminate the lease if they determine for any reason that the site is not suitable for a solar farm project or if they are not able to obtain the necessary government approvals and permits. This means that the landowner would only receive a small amount of rent during the due diligence period, which is usually at a much lower rental rate.
A good solar land lease should also require the developer to be responsible for all security and liability associated with any property damage or personal injury on the project. As a landowner, you do not want to be responsible for this.
Another major consideration to keep in mind is what will happen at the end of the lease. Although the lease agreement itself should include provisions about the decommissioning of the site, the project will most likely be sold one or more times during the life of the lease. There is no guarantee that the operating company will still be there at the end of the lease to remove the project and return the land to a usable state. Establishing a surety bond may be appropriate.
You should consult an experienced New Hampshire real estate attorney before entering into any land lease. An attorney will help you weigh the pros and cons and ensure you are protected. Contact our team to request a consultation.
Christopher E. Ratté is a Partner at the law firm Shaheen & Gordon, P.A., and has been serving the needs of small business clients in New Hampshire for more than 25 years.