Karen Walsh: I've been approached by a solar company - but don't know where to start

When you sign the Option Agreement, you have effectively agreed the terms of the lease, warns rural solicitor Karen Walsh.

Dear Karen, 

I have been approached by a developer, and they are interested in placing a solar farm on my land, along with some neighbouring landowners.

It is tempting as it would give me great rental income and security over the years, but I do not know much about solar farms or the legal agreements or what they entail.

What are the things to look out for? Will my legal fees be discharged? What advice would you have?

Dear Reader, 

The prospect of additional income, of course, will always be welcomed, but it is very important before entering into any legal agreement that expert independent legal advice is obtained.

In addition to legal advice, it is very important to seek advice from your tax advisor, and also your agricultural consultant if you are farming. If you have a mortgage over your lands, your bank’s consent will also need to be obtained.

The agreements typically include an ‘Option for Lease’ and a draft lease. When you sign the Option Agreement, you have effectively agreed the terms of the lease.

An Option for Lease is effectively an agreement between a developer and a landowner which involves the developer arranging for the design, planning, financing and installation of the solar energy system on a farmer or landowner’s land.

During the term of the Option Period, which can range from between five to ten years, the farmer or landowner can use his land during the term, but must allow the developer to apply for planning permission on his lands and also to carry out tests on the land, for example, archaeological studies, ecological studies etc. that would be required to accompany a planning application.

Option Agreements allow the developer to lease the land once planning permission has been obtained.

The leases can range from between 25-40 years. Typically, planning permission lasts for 25 years, and there can be a clause in the lease that if a further application for a planning permission at that point in time is successful, then the lease should continue for a further 10-15 years.

You will receive a payment from the signing of the Option Agreement, but it will be nominal, typically, €1,000 per year or a certain payment per acre.

If the developer is granted planning permission and requires the land, the developer is entitled to insist that you execute the lease, and you will have solar installations on your land for typically 25 years.

Rent varies considerably depending on the individual site and the project. Rental agreements should be adjusted for inflation.

Some developers offer an extra payment on foot of successful commissioning of the project. It is critical that the developer would have insurance policies in place to cover an event, for example, if someone were to have an accident on your land and that you would be indemnified in respect of any accidents, claims etc.

It is also critical that the developer would not have an automatic right to renew the lease at the end of the term and that they would renounce any rights they have under landlord and tenant legislation.

The remainder of your land can be restricted in the agreement, and it is very important to examine the definitions of, for example, “Retained Land”, “Landowner’s Land”, “Demised Premises” etc. The devil is in the detail.

Generally, the developer will not want anything that interferes with the light affecting the lands the subject of the lease, for example, they will want to restrict you planting trees or erecting a building next to the solar farm that would interfere with the light. These clauses can be negotiated and should be examined carefully.

It is very important to obtain tax advice as regards retirement relief, agricultural relief and tax planning for the future in the event that you wish to transfer the property to a child at a later stage, so that you can ensure that you protect the various reliefs as much as possible by tailoring the agreement or by restricting some of the land given to the developer, i.e., reducing the acreage being given to allow you to qualify for the reliefs, so that your property is not designated as entirely commercial property at a later stage.

Legal fees are normally discharged by the developer or they will discharge a portion of the fees. This is just a general overview, and the agreements need to be examined in detail.

Every landowner’s needs and circumstances are different, and the agreements should be tailored to reflect individual circumstances.