By Duane Friends
One of the most important components of wind energy production is the contract between the landowner and the developer, commonly referred to as a lease. Wind energy leases are long-term contracts which will be in effect for as many as 80 years. Wind energy contracts are complex documents which, if properly developed, cover a broad range of property issues. It is essential that landowners understand these contracts and ensure that their property rights are protected.
The following information comes from the Purdue Extension Publication, A Landowner’s Guide to Commercial Wind Energy Contracts, by Curt Emanuel and Chad Martin.
Lease vs. Easement
Most wind contracts contain lease and easement provisions, though they may not refer to them by those terms. It is important to understand the basic concepts associated with these two aspects of the contract. A lease is a contract which provides the lessee (the wind energy company and/or developer) with exclusive possession of the land for a specified period of time. The lessee will have continuous access to the property and will be able to perform all functions on that property to utilize it for the specified purpose.
In essence, in signing a lease, the lessor (the landowner) hands over that property for a certain period of time and for agreed upon compensation. A lease is a contract providing the lessee with exclusive possession of land for a specified period of time. An easement allows a party to utilize property for a specific purpose or purposes while the landowner retains all other property rights.
An easement is less comprehensive and permits a party to use land for a limited purpose while the landowner retains all other rights. For example, a developer may request an access easement to perform maintenance work on buried electrical lines running through a field while the landowner retains the right to farm that land.
In general, a wind contract will contain a lease for the land on which the turbine and access roads are sited, which will be property reserved for exclusive use by the wind company. It also will include easements for transmission lines and for the right to capture the energy from the wind blowing across the property owner’s land.
The Wind Contract
It is important to take the necessary time to review a contract. The landowner should be certain to understand the provisions of the contract and determine whether they are acceptable. An attorney representing the landowner should thoroughly review and explain the contract. It is important to understand what it contains and the potential impacts before signing.
A wind energy contract generally consists of three sections: the option agreement, operating option, and option to extend. By signing a contract, one agrees to the provisions contained in all three sections.
Option agreements can be constructed in various ways. Some may be for a specified period of time, such as five, seven or even 10 years. Others may be for as little as a single year, but the developer retains the option to renew it for multiple years. From the wind company’s perspective, option agreements provide an opportunity to bring enough contiguous land under contract to demonstrate to management and potential funders that a viable wind farm may be constructed.
Operating option – also called an extended option, lease option or lease. This section of the contract addresses the production phase of the project. Included in this section will be provisions for constructing wind turbines, access roads, and underground and aboveground transmission lines. Restrictions on land owner use of the property also will be included, as well as payment terms during the operating period.
Operating options are long-term agreements. They generally are for a period of 20-30 years.
Extension option – also called an option to extend
Many contracts include a provision allowing the wind developer to automatically renew the contract for an additional operating period (20-30 years).
How Does a Contract Impact Property Rights? Under a wind contract, some property rights will be relinquished. What restrictions on the use of property will the contract include? The contract should be examined for such things as new construction, aerial applications, access roads, decommissioning, property taxes, insurance, and compensation for damages, among other things.