Initially, the project developer will offer the landowner an option-lease agreement with a small payment, typically less than $5,000 in a one-time payment, as consideration for the ability to access the property, investigate viability for solar development, and possibly elect to lease the land for the long term. During this phase, the solar developer is studying the electric grid, soil type, development financing, equipment placement, and any potential challenges that might prevent the project from going forward.
This option portion of the option-lease agreement gives the solar developer the right to exercise its option to lease the land if the solar developer chooses. The lease portion of the same agreement spells out in finer detail rent amounts and periodic rent increases, operational timing of the project, property taxation, assignment to another company, insurance, remedies, and, generally, the many rights and responsibilities of each party to the agreement.
In the instance the solar developer is not able to develop the project within the written time period (typically 1-2 years with the possibility of annual extensions), the landowner keeps the option payment and parties go their separate ways. In the instance the landowner does or does not do something which prevents the solar development, then the landowner should return the deposit, depending on the terms of the option agreement.
Construction Phase (Short Term)
Relatively speaking, the construction phase of solar development is usually a matter of months. By the time a construction company has equipment on site and is ready to install solar panels, the solar developer will have accomplished all the legwork to acquire the necessary government permits, engineering studies, and agreements with the electric utility to take on the solar electricity. A hosting landowner may negotiate for compensation during the construction phase for any inconveniences or crop input or yield losses, for example. Often, a developer will begin paying the lease money once construction begins.
Operational Phase (Long Term)
Broadly speaking, the operational phase starts when the project is constructed and fully commissioned, though lease payments to the landowner begin with project construction. As of early 2020, this lease payment amount has ranged between $800 to $1200 per acre per year. Landowners should ensure their lease payment structure includes a percent escalator to track with dollar inflation. Compensation should continue until the solar equipment is physically removed from the land and the land returned to its original condition.
Project Extension or Decommissioning (Short Term)
The lease portion of the option-lease agreement may include a clause wherein the landowner and solar project owner revisit the lease terms to extend the solar project’s life by recommissioning it with updated equipment. Most likely, this would reset the operational phase for another 25-30 years. Alternatively, the lease portion should include a clause about decommissioning the solar project by removing all equipment and returning the land to its pre-development condition within a certain specific time frame once the project has ceased to operate, typically 12 months. Lease rent payments should continue until the project is fully decommissioned.
Miscellaneous Payments
Solar panels are not the only components of a solar project. Service roads, substations, additional electrical equipment, overhead lines, impacts and/or damage to drain tile lines, stormwater ponds, and more are also integral parts of a solar energy project. Landowners should ensure there are compensation mechanisms spelled out in the land option-lease agreement for these items as well. For example, overhead lines might be compensated at a dollar figure per linear foot, and service roads might be compensated on the basis of acreage lost with an additional payment for any inconvenience caused to farm implement use during planting and harvesting.
Legal Matters
For more information on the different types of legal agreements and land transactions involved in solar energy development, please read the Farmers Legal Action Guide to Solar and Wind Energy in Minnesota (2019). This professional guide provides more detailed insight on easements, leases, options, rights of first refusal, land sales and the many details landowners might consider when approached by a solar energy developer.