AUGUST 12, 2016
How Landowners Protect Themselves in Solar Land Leases
In states that allow remote net energy metering, like New York, solar developers are searching for ideal sites for hosting large solar projects so large energy users can benefit from solar. A good solar developer knows exactly what it’s looking for in a site and the terms they can offer in a lease agreement. To the contrary, many landowners, for no fault of their own, are approaching these deals without an understanding of how to protect themselves, their property, and their economic interest in the lease arrangement.
To help landowners navigate this process, I wanted to outline the key considerations that John Cappello, partner with the New York law firm, Jacobowitz and Gubits LLP, recommends when entering into a solar lease. I also reference a helpful fact sheet from the NY-Sun program.
The first thing Cappello stresses is to hire an attorney. We couldn’t agree with him more. You shouldn’t enter into a contract affecting your land without involving a lawyer who will make sure any agreement addresses your concerns. No two properties are the same. Therefore, no two leases are the same, so don’t accept an offer from a solar developer without your lawyer’s blessing.
It’s important to note that the firm developing your land for a solar project might not be the same entity that builds, owns, and/or maintains the installation. To help avoid conflicts and protect your interests, make sure that everything you discuss surrounding the lease agreement is in writing and clearly memorialized.
Key Considerations in a Solar Land Lease
Impact of increased assessment: You should not be responsible for any increased assessments or penalties. Once a solar energy system has been permanently affixed to land or a structure [Real Property Tax Law (RPTL) § 102(12)(b); 8 Op. Counsel SBEA No. 3] it is defined as “real property.” The definition of “real property” also includes a “power generating apparatus” [RPTL §102(12)(f)]. As such, it is taxable unless it qualifies for an exemption (RPTL § 300). RPTL § 487 is a state-wide renewable energy exemption in New York that can apply to solar projects.
Rollback taxes: Land that is used for agricultural purposes is entitled for a tax exemption. Once it’s converted for solar power generation, there will be a roll-back tax of five years, which should be the responsibility of the solar company. You also want to verify that the solar firm is responsible for any penalty or increase in taxes related to the provision of the solar arrays on your tax bill and assessment.
Proportionality: The local assessor determines the contributory value of the solar installation to the value of your property. If the value of the converted acreage devoted to the solar installation increases, it may affect your taxes. Any increase in taxes should be proportionate with the amount of land being used to host the solar project. Also as noted above, make sure the solar company is responsible for any increases or penalties associated with the array. For more on taxes see NY-Sun’s fact sheet on solar land leases.
Sub-Division: For projects over two megawatts AC, there may need to be additional sub-division or land use approval. You want to make sure that the responsibility to secure any additional approvals belong to the solar company, but that you also have the opportunity to review any approval requests before they are submitted.
Setbacks: Verify the setback requirements established by your governing municipality because that will influence the design of the solar array and the associated costs.
Fencing and security: This is the solar company’s responsibility and should be outlined in the lease as such.
Insurance: Make sure the solar company you’re working with is properly insured for the property and liability. Also, make sure that you as the property owner are listed as an additional insured on all such policies. In addition, anyone performing work on the property should have proper workers compensation coverage.
Easements and site usage: You should carefully consider the defined easements around the solar array in case you anticipate building on or using land adjacent to the system during the lease term. Any structure built will need to be located outside of those easements, and not shade the array or cause any issues with system production. In general, as the landowner, you should understand what limitations, if any, there are to use the property around the solar project.
Utility infrastructure and access roads: Understand if and where power lines and electrical poles will be located on your property and determine if it will impact your onsite operations. This also applies to the siting of access roads as the location and grading could disrupt normal drainage, all of which should be planned and accounted for by the developer.
Removal and Decommissioning: The lease should include language that clearly protects that landowner from any costs associated with the removal of materials and equipment related to the solar project. Solar panels, racking materials, wiring, inverters, fencing, and ballast blocks (if used) are some of the items that will need to be removed at the end of the lease term so the property is returned to its pre-lease conditions.
All of these considerations are typically addressed in solar leases, but as I mentioned before, no deal is the same. Work with a lawyer who has experience in executing land leases, and even better solar land leases, in order to consider potential issues and feel comfortable with your lease.