Under an Option Deed and a Lease Agreement, the most common payments are the option fee and the rent. There are other types of payments such as reimbursement of legal costs and fees for grant of easements, but this article will only focus on the option fee and the rent.
In consideration of the landowner’s grant of an option to lease/purchase the land, the developer will pay an option fee to the landowner annually during the option period (e.g. 4 years). Typically, for the purpose of conducting investigations on the land, it is quite common that during the option period contractors for the developer will access the land with equipment to conduct different types of tests. Accordingly, when negotiating the amount of the option fee, the landowner needs to consider the potential impact on the landowner’s farming activities as well as the area of the option land.
Under the Lease Agreement, landowners for solar farms are typically paid an annual fixed amount per hectare leased. In contrast, landowners for wind farms are typically paid an annual fixed amount per turbine.
In a wind farm project, there are two common methods for calculating the rent:
1. a flat annual fee per turbine, regardless of size or capacity;
2. an annual fee based on the generating capacity of the turbine.
The second method is recommended because modern-day turbines have much greater capacity compared with turbines available previously and, therefore, can result in less turbines being hosted by the landowners.
Rent actually received may be less than you originally expected
At the initial stage of the development process, it is not uncommon for a developer to propose more turbines or solar arrays than will be finally approved or installed, which can result in landowners hosting less facilities, potentially earning less than original expectations. Accordingly, landowners need to ensure that necessary clauses are included in the Lease Agreement to protect their interests in relation to the rent (e.g. minimum amount of rent payable).
Everingham Solomons have experienced Solicitors who have represented landowners in wind/solar farm projects. Please do not hesitate to contact us for any legal advice you may need in relation to a renewable energy project, because Helping You is Our Business.
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