From farmland to wind farm: The property process and issues for consideration

As part of the shift to renewal energy, farmers are being approached by developers of wind farms with requests to be allowed to use their farms for wind farms. But with those requests, commercial and legal considerations need to be taken by farmers before signing on the dotted line. By Stephen

Pallavicini – Special Counsel, Property and Construction, Macpherson Kelley.

Initial documentation and costs

The developers will have a variety of “standard” documents which will be offered to the farmers. While pro-forma agreements are acceptable, farmers should consider whether the agreement addresses the particularities of their specific site.

The land may undergo a testing phase during the initial part of a transaction where the land is “locked up” for several years while tests are undertaken to assess the viability of any wind farm. This means farmers should ensure that the annual fee that is paid to take their land off the market for that time. An interested developer should also be prepared to pay the farmer’s legal costs on assignment as these can add up.

The testing phase

During the testing phase, the developer will want to install testing equipment and other structures on the land but farmers may want to put certain safeguards in place. Farmers can look at defining access routes, imposing restrictions during specific times of the year, specifying the location of batteries and ensuring contractors don’t bring environmental hazards on to the farm.

The testing phase is also a good time to define the lines of communication between the farmer, developer and local contractors for prompt attention to operational matters.

Contract considerations

The developer may “damage” the land as part of its normal activities and photographic evidence should be taken to document the condition of the land before the occupational period. Developers should be required to return the land at the end of that period to the same condition. To further protect the land, condition reports should be used at the commencement of any licence or lease with a provision for regular updates.

The developer counterparty will most likely have a clause allowing it to assign its rights under the access arrangements. Farmers should carefully consider the assignment clause and approval process which affects whether the farmer can approve an assignment and whether the developer should be released from any obligations on assignment.

Development approval and existing agreements

Typically, a farmer is approached early in the development phase, but they should seek advice on the development process and timing. If there is a farmers’ consortium, finding out whether they acting together or as individual units may avoid a situation where a developer prefers a neighbouring farm and someone is therefore missing out.

A developer should also be required to do its due diligence when identifying whether it’s is in breach of an existing agreement such as a telecommunications licence or bio-diversity stewardship agreement. Such arrangements should be disclosed (with consent if there are confidentiality provisions) and there should be appropriate compensation clauses in the event of breach.

Leasing of land

Farmers should note there is no statute or court mechanism to determine what is fair compensation for the use of their land amidst a wind farm lease. The rent for use of the land should therefore be negotiated as if it were a commercial transaction. Legal advice can clarify some of the underlying questions that should be asked in the leasing process.

Farmers should consider rates and land tax implications when negotiating a lease. As a result of a wind farm, the land may be re-assessed from primary production to industrial use once the turbines are installed resulting in a loss of land and tax exemptions. Turbine blades or power lines may also cross the boundary of a neighbouring property and easements may need to be created to deal with these issues.

Lease terms will be lengthy – perhaps 20 or 30 years with options to renew – so advice should be sought when considering rent increases, compensation and market value over such a lengthy period of time.

What if you want to terminate?

Termination clauses are important. A developer should not have the right to terminate for convenience. If there is cause, a developer should consider a mechanism to compensate the farmer for the occupation period and the end of the natural term of the lease. At the end of the project, the land should be returned to the condition it was in at the commencement of the lease, with all structures installed and equipment removed. That said, the decommissioning process can get complicated. Legal advice may be needed to plan and negotiate a fair decommissioning on behalf of the farmer –before things get out of hand.