October 1, 2008

Wind Energy Leases


Fall 2008

As the wind energy boom continues, landowners need to be aware of important issues they will face when considering the placement of wind turbines on their property. Due to the scarcity of turbines and the expense of wind energy development, the most likely form of wind energy project landowners will encounter is a large-scale commercial wind project. In a typical large-scale project, a wind energy developer will approach a landowner with a form of wind energy lease, sometimes referred to as a wind easement. A wind energy lease, once executed between the developer and a landowner, will typically contain the terms under which the developer will study the wind resource; construct, operate, and maintain wind energy facilities; and the financial terms for any power generated on the property. Rarely will a lease for a given property contain enough acreage to constitute a wind farm. Rather, wind developers will enter into leases with multiple landowners owning contiguous tracts of land. The goal of such a project is to develop several adjacent or contiguous properties into a large-scale wind farm.

A wind energy lease often includes an exclusive option granted by the landowner for a given period of time, usually between two to seven years. The purpose of the option, sometimes referred to as the "development period," is to allow the developer time to conduct a wind resource study to determine whether the potential site is suitable for wind development. Typically, the option grants the developer the exclusive right to enter the property for the purposes of installing, maintaining, operating, inspecting and removing one or more wind monitoring devices.

Payment for the option is usually calculated on a price per acre basis for each acre subject to the option and is either paid as a flat fee at the time the lease is executed, or an annual fee paid during the term of the option. In most cases, if the wind resource is favorable and the developer exercises the option, the long-term lease (routinely between 25 and 30 years) becomes effective and immediately binding upon the parties. Thus, it is important to negotiate the terms of the wind energy lease in advance as it will contain the terms by which the landowner will be paid for energy generated on their property, any access limitations desired by the landowner, and provisions for the installation, operation, maintenance, and decommissioning of the facilities installed by the developer. These terms can be complex and negotiating the best deal can be both time consuming and expensive. However, due to the long-term nature of the lease, it is import that landowners negotiate the best deal up-front, as there will be little or no opportunity to revisit these issues after the lease has been signed.

As with any long-term agreement, it is necessary to identify and address important issues before entering into a wind energy lease. While developers will provide landowners with a form of lease to consider, it will rarely contain provisions designed for the landowner's specific property or that protect the landowner's interests. In many cases, the form of lease provided by wind developers lacks significant detail regarding landowner protections, acceptable assignment provisions, and developer use restrictions. In addition to negotiating the best financial terms, landowners need to address these issues as well as protections for current and future uses of the property (i.e., ranching, other agricultural uses, hunting and other recreational uses), construction, operation, maintenance, and removal provisions for any wind energy facilities, and provisions regarding insurance, indemnity and default remedies should the developer sell the project or go bankrupt.

Entering into a wind energy lease can be an exciting and worthwhile experience for landowners, as well as a great source of supplemental income. However, landowner's must exercise caution to ensure that they get the best financial deal as well as adequate protections for their properties.

For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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