January 4, 2022
With growing demand for clean energy solutions across the country, and the increased availability of renewable energy incentives at federal, state, and local levels, developers and landowners are teaming up to construct solar farms nationwide. A solar land lease is a beneficial agreement for all concerned parties, offering a consistent, long-term passive income for the landowner, and a suitable project development site for the solar company.
What is a Solar Farm?
The term solar farm typically refers to a photovoltaic solar array consisting of hundreds, or even thousands, of solar panels mounted on racks. Solar farms can vary significantly in size, occupying anything from just a few acres to as much as several hundred acres. Generally speaking, a developer like YSG will require at least 10 acres of clear, flat land in order to construct a solar farm project. Additionally, the parcel of land should be within 2 miles of a substation and no more than 1,000 feet from three-phase power. Factors such as topography, infrastructure proximity, water access, and local land use & zoning regulations will also be taken into account.
What is a Solar Land Lease?
A solar land lease is a long-term agreement—typically around 25 years—between a landowner and a developer, wherein the landowner receives rental payments from the developer. These payments are usually made annually on a per-acre basis. The process of leasing land for solar begins with an approach from either the developer or the landowner and, if the parcel of land is promising, the developer will likely propose either a lease or a pre-lease option which includes a lengthy period of due diligence. If the results of this due diligence period are satisfactory, the lease term will be extended. In most cases, the lease agreement will include annual rent escalation, with rates commonly between 1.5% and 2.5%.
What Landowners Should Know About Solar Land Leases
As with all contracts, it is essential that the landowner reviews the agreement thoroughly and ensures a complete understanding of every provision included therein before signing the lease. Below, we have outlined some of the key aspects which landowners should consider when reviewing a potential lease agreement. Of course, this list is not exhaustive and landowners would be well advised to speak with their legal counsel before committing to a solar land lease.
Lease Term: As noted, a solar land lease is a long-term commitment, typically 25 years or more.
Due Diligence: Before leasing the land, a developer will require a certain amount of time to perform due diligence at the site.
Rent: Rent is usually paid annually on a per-acre basis, but this isn’t always the case. Sometimes the yearly payments can be made on a per-megawatt basis.
Mortgage: The landowner’s ability to mortgage the property in the future may be limited or prohibited by the solar land lease.
Adjacent Property: Adjacent property may be needed for access, easements and other uses arising from the solar farm project.
Remedies: Substantial investment is involved in developing a solar farm, and so the developer may seek broad remedies in the event of the landowner defaulting.
Other: Additionally, the lease should cover insurance, timber rights, taxation, representations & warranties, the condition of the property at the completion of the lease term, and much more.
Are you a landowner? You could be in a position to lease your land to a solar developer and generate a stable, consistent passive income stream for decades to come. Get in touch with YSG today to find out if your land is suitable for a solar farm project, and how much you could earn from a solar land lease. Call the office at 212.389.9215 or send us an email to learn more.
YSG Solar is a project development company responsible for commoditizing energy infrastructure projects. We work with long-term owners and operators to provide clean energy assets with stable, predictable cash flows. YSG's market focus is distributed generation and utility-scale projects located within North America.
Sources:
https://www.natlawreview.com/article/solar-energy-leases
https://norrismclaughlin.com/blogs/elb/category/solar-energy-lease-landlords