“I have been approached by a solar development company looking to put a solar farm on part of my farm. They want me to grant an option over part of the farm until they know whether they will get planning, etc. I am worried about the legal and tax implications. Have you any advice?”

From a landowner’s point of view, the development of a solar farm on part of the farm can be a highly profitable use of land. However, landowners are often unaware of the obligations imposed on them in granting such an option.

Legal documents governing the relationship between the landowner and the solar farm development company can vary depending on the company involved but, generally, involves some or all of the following legal agreements.

Exclusivity agreement

This is usually a short document, which gives exclusivity to a particular developer for a short period, typically 12 months. The purpose of the agreement is to enable the developer to conduct a feasibility study on the land to see if the project is feasible.

The agreement typically covers such items as an exclusivity period, a right to access lands and authority to apply for permissions, obligations on each party during the exclusivity period, confidentiality, binding status and governing law and jurisdiction. The developer would generally also request the landowner to sign a landowner consent form, to enable the developer to apply to ESB networks to obtain the grid connection and secure capacity.

Heads of terms agreement

The heads of terms may be incorporated into the exclusivity agreement or as a standalone document. Heads of agreement are generally not legally binding – they only signify a moral commitment. The only terms which are normally binding are those relating to confidentiality, costs, exclusivity and governing law and jurisdiction. Non-binding terms relate to the nature of the deal/transaction, price or payment or form of consideration, the timetable, details of any conditions and due diligence.

Option agreement

The option agreement is legally binding and can tie in the landowner to a 35-year lease, so a landowner should ensure that they are fully appraised of all legal and tax aspects before signing up to such an agreement. It gives the developer the option to require the landowner to enter into a pre-agreed lease. The payment to the landowner for granting the option can vary from between €1,000 to €10,000.

The terms of the option agreement and the lease agreement are normally negotiated at the same time with the proposed lease being attached to the option agreement. The option agreement confirms the landowner’s acceptance in principle to having rows of PV modules erected on their land. It allows the developer to enter the landowner’s property to carry out research including environmental impact studies, which will be required for planning applications.

Right of renewal

The option is normally granted for a term of five to seven years with a right of renewal and the landowner should ensure that there is provision in the agreement for a further payment for extending the option agreement. The option is generally triggered when the developer obtains planning permission for a minimum number of PV modules and obtains a connection to the national grid. If the development cannot go ahead, the option is not exercised and the lease does not become operative.

The benefit of the agreement is normally assigned by the initial developer to another development company once planning permission has been secured. This can usually occur without the consent of the landowner provided that the new developer enters into a deed of covenant with the landowner to continue to observe and comply with the obligations of the initial developer.

Lease agreement

The lease agreement is typically for a term of 25 years with a right to extend for a further five to 10 years. It is important to identify precisely the area of land to be leased.

The developer will seek to include as much land as possible at the option agreement stage and to drop land at a later point when the lease is triggered depending on where they get the permission for the solar farm.

The developers will also seek to retain land for the purpose of creating wayleaves/rights of way in order to access other adjoining landowner’s lands being used for the construction of PV modules, so landowners should be careful not to leave themselves open to being used as a gateway for the construction of a solar farm on an adjoining landowners land.

The lease may also provide for:

  • A right for the developer to mortgage or charge the lease as security for monies owed by the developer without any consent from the landowner. However, the lease normally provides that notice be given to the landowner within a month of the transaction of every change in ownership of the lease or any mortgage or charge.
  • If the developer is struck off the register of companies or goes into liquidation or has a receiver appointed, wherein the landowner should be entitled to terminate the lease but without prejudice to any rights or remedies, he/she may have in respect of a breach of any of the developer’s obligations contained in the lease. However, the landowner may be restricted in terminating the lease by having to consult with a chargee, for example, a bank who may have a mortgage/charge affecting the developer’s interest in the lands. The landowner may also be obliged by the terms of the lease to allow the receiver/liquidator a period of time (eg 18 months) to sell the developer’s interest in the lease.
  • A comprehensive clause dealing with how the property is to be reinstated at the end of the lease. The lease normally provides that the developer would within 12 months of the end of the lease remove such equipment that is above ground level, including the removal of foundations, hard standings, roadways or tracks, but excluding all items one metre or more below ground level. Further, the developer should be obliged to reinstate the property to a reasonable soil depth to allow normal agricultural use insofar as used for agricultural purposes immediately prior to the first day of the lease.
  • Conclusion

    It is clear that there are many legal considerations to be aware of in negotiating a lease with the solar farm developer. There is a standard lease used by each solar farm developer and landowners should ensure that they sign up to the lease with the most favourable terms as a whole rather than the most favourable rental provisions.

    In short

  • Legal and tax advice, if offered, an option over part of your land holding for solar.
  • Legal documents usually include some exclusivity agreements.
  • Heads of agreement usually are not legally binding but signify a moral commitment.
  • In a lease agreeement, it is important to specify precisely the parcel of land to be leased.
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