The push for sustainable energy presents farmers with an intriguing opportunity: leasing their land for solar energy projects. These arrangements, known as solar leases (or easements), offer a blend of benefits and risks to farmers.

Solar leases offer enticing benefits to farmers, including:

• Rent payments often far exceed the profitability of traditional farming.
• Solar leases typically extend over a considerable duration, providing a potentially stable source of income over time.
• Solar leases allow farmers to retain ownership of the land, ensuring that they have the option to either revert to traditional farming or explore other uses of the land when the solar lease ends.
• Solar leases can be a succession strategy for farmers, presenting an avenue for securing income to support future generations or as a retirement option.
• Farmers play an active role in promoting sustainable energy by partnering with solar companies.

While the benefits of solar leases may be compelling, farmers should be aware of risks:

• Solar companies might lack an established track record, raising concerns about financial stability and operational reliability.
• Solar companies typically seek leases with terms heavily tilted in their favor.
• Solar companies often can terminate leases at any time, for any reason, and without further liability. This exposes farmers to the risk of sudden income loss and potential expenses for land restoration.
• Farmers might find portions of their land used for accessory aspects of the solar project at lower rent rates.
• If a solar company terminates the project, farmers may find themselves stuck with unwanted equipment installed on their land as well as other modifications including roads, fences, transmission lines and other components that supported the solar project. The solar company generally purchases a bond covering restoration costs, but the bond might not be fully funded until several years into the project, putting farmers at risk for restoration costs if the project terminates before the bond is funded.
• The involvement of third-party contractors hired by solar companies to install facilities carries risk of these contractors placing construction liens on the property for unpaid fees.
• High-capacity wells that cease operation during a solar project might need to be removed or sealed, impacting future water access when the solar project ends.
• Solar companies may be authorized to assign their interests in the lease without the farmer’s consent, potentially transferring the lease to unrelated entities with differing backgrounds and financial support.
• Solar companies generally require a confidentiality agreement limiting disclosure of financial and other lease terms, preventing farmers from discussing such terms with neighbors.
• While compensation might seem strong today, fixed terms could potentially lose value over the life of a lease.

While the appeal of lucrative rental income and sustainable energy is undeniable, farmers should approach these transactions carefully and obtain counsel to ensure their interests are safeguarded. The legal team at Ruder Ware has experience in solar leases, offering their expertise to aid farmers and other stakeholders in navigating complex solar leases.

© 2024 Dairy Forward the official newsletter of the Dairy Business Association. Reprinted with permission.