What key terms I should consider when leasing my property to a solar farm?

Other Uses

Solar is an intensive use that will take up the majority of, or all your property.  Therefore, the first consideration is what are the alternative uses for your property and are you comfortable forgoing those uses for multiple decades?  For example, if you are currently farming your property, are you okay with taking your farmland out of production for up to 40 years?  There are financial and emotional considerations to be made.

The good news is that a solar lease will generate steady and predictable income for decades to come.  By working with Renewable Land, there are ways to monetize your lease without selling your property and to take those proceeds to buy additional land.

Option Period

The process begins by you granting the solar developer an Option to Lease.  These option periods range, but are typically multiple years long.  Developing a solar farm is a long and complicated process.  During the option period, the developer will have many milestones to clear, including:

• Obtaining government approvals
• Securing an interconnection agreement to tie the solar project into the existing power grid
• Finding a counterparty to sell the power to.  This is typically via a power purchase agreement (PPA)
• Securing project financing.  Many of these projects run well into the 9-figures and there are multiple financial partners involved
• Entering into an agreement with a contractor, whereby the contractor agrees to build the project for a certain price by a certain date

If all these milestones are achieved, then the project will typically proceed and you’ll have a long-term lease.  However, development is a high-risk game and there is no guarantee that a project will come to fruition.  You’ll need to decide if you are comfortable tying up your land for a considerable amount of time in exchange for nominal option payments and the chance of a solar lease down the road.

Rent

While terms like annual rent increases are important, rent is the biggest driver of economic value.  See our previous blog post on figuring out what rent you should receive for leasing your property to a solar farm for guidance on this key term.

Property Taxes

An often overlooked, but very important lease term is property taxes.  If your property is currently designated as agricultural, then you likely have a very low tax basis.  However, property taxes will increase drastically once an operating solar farm is on your property.

At a minimum, the tenant should pick up any additional property taxes that are assessed as a result of the project.  It is very common for solar leases to be triple-net, meaning that the tenant is responsible for all property taxes moving forward.  A triple-net structure is preferable for two reasons:

• You will not owe any property taxes while the lease is in effect.  Not only does this increase your take-home income over the lease term, but it also greatly increases your property’s value in the event you ever decide to sell to a group like Renewable Land
• It takes the ambiguity out of deciding what portion of the property taxes you are responsible for and what portion will be paid by the solar tenant

Do you have additional questions about leasing your property to a solar farm?  Feel free to call us today.