How to protect your heirs from solar farm lease problems

Large-scale solar farms (80-200 acres plus) are now financially viable without the need for subsidy and there are plenty of solar developers keen to get their hands on farmland sites.

Solar farms can be a good opportunity for farmers and landowners – with income from farming expected to come under financial pressure over the next few years, a solar farm could be a way to replace some, all – or perhaps even more – of the future loss of Basic Payments.

However, while the headline rents on offer are often very tempting, landowners should be aware it is more what the Heads of Terms don’t say, than what they do, that they should care about.

Getting the Heads of Terms right – particularly in relation to what happens at the end of a lease – can be crucial if you want to avoid leaving your heirs with a problem.

A big question, for example, is what happens at the end of the lease if the tenant fails to remove the equipment?

The cost of removing it could be substantial, especially if batteries are included, and the environmental charges and/or taxes associated with the disposal of waste are only likely to rise significantly over the period of the lease.

So it is important that the cost of removing the equipment from a site and responsibly disposing of it is addressed by the solar tenant during the period of the lease.

There are many questions to be addressed during negotiations including:

• When should the funds to cover the costs of the clear-up of a site be secured?

• What form should the funds take – cash, bond or other?

• Who has access to the funds and under what circumstances?

• Who decides how much is to be set aside in this fund – would you risk leaving it up to the tenant or would you want an independent valuer?

• How often should the funds required be reassessed as the equipment gets older and less valuable while the costs of disposal rise?

It’s important to make sure that the landowner will have access to the funds in the event that the tenant doesn’t comply with its obligations in this respect. It is also advisable to ensure that the funds are in place and accessible before the tenant has an opportunity to break the lease.

Read our previous article on Things to consider if approached by a solar farm developer.

Strutt & Parker’s energy team can help to put you in touch with reputable developers, negotiate Heads of Terms, guide you through Option and Lease agreements and assist your solicitors where needed. Please get in touch if you have any queries.