From photovoltaic cells mounted on the top of houses to solar powered fences and even solar powered tractors, no one should underestimate the power of the sun for trailblazing.
Schemes for full scale solar farms are still being considered across the country. The typical arrangement is for a developer to take a lease of an area of land on which it will mount rows of photovoltaic cells.
The lease, however, is only granted once the developer has obtained planning permission for the development. Usually, this agreement to apply for planning permission is captured in an option to lease, together with terms setting out the developer’s obligations in relation to the planning application, regulating the developer’s access to the land and restricting the landowner’s future dealings with the land before the grant of the lease.
It can be a lucrative project for a landowner. Often a fixed rent will be offered, at substantially more than the average grazing rent. Sometimes a top up rent or alternative rent is offered, based on the generation of electricity. Typically, a landowner will also still be able to graze small animals, such as sheep, around the photovoltaic cells.
But don’t be dazzled by the developers! If you’re approached, what do you need to watch out for in the initial offer?
Break it down
The developer will want vacant possession when it is granted the lease. So, who is using the land at the moment? It’s likely that it’s already tenanted so you’ll need to review the tenancy agreements to check whether there is a right to break the tenancy to take the land back early. You’ll need to see whether the break is permitted for the whole or part of the area currently tenanted and the notice period. An Agricultural Holdings Act 1986 tenancy may be able to be terminated once planning permission has been obtained but most developers will want to see an agreement to surrender with the tenant. Remember to factor this in to your discussions about the overall project. A tricky tenant could want a substantial sum to agree to surrender its holding, on top of compensation for loss of crops and Single Farm Payments.
Money, money, money
Be aware of the number of different agreements that will need to be documented. Usually, there will be an option to enter into a lease, attached to which will be a draft of the lease itself. However, the developer may also wish you to enter into an exclusivity agreement to prevent you negotiating with other parties for a period. There may also be the grant of a lease or transfer of an area for a substation to the electricity company. You may be asked to enter into a direct agreement with the developer’s funder, for consent to assign the option or the lease to another company and also to enter into planning agreements.
There is no guarantee that the developer will obtain a grid connection offer, or indeed, planning permission, and so you will want your agent’s and legal costs to be covered regardless.
Developers will usually offer to pay for both your legal and surveyor’s fees and these can be substantial so you should ask for a solicitor’s undertaking from them on this basis as early on as possible (whether or not the documentation is actually completed).
In or out?
You might see reference to the lease being within the Landlord & Tenant Act 1954. This is shorthand for being within the security of tenure provisions of this Act. It means that a developer can ask for another lease at the end of the term on substantially the same terms. Given that these solar leases are often for a term of 26 years, agreeing to another of the same is quite a commitment a long way in the future. So, if possible, avoid this kind of provision.
The end is just the beginning!
This is an emerging industry and nobody really knows how expensive it could be to put the land back into good agricultural condition at the end of the lease. You’ll need to make sure that the land is safe and usable both above and below the soil. Solar companies often require the lease to be granted to a Special Purpose Vehicle with no assets, other than the solar farm and the income from the solar farm, including the government subsidies. A requirement to make good damage caused to the land when the lease ends might not be worth the paper it’s written on, especially if the company gets into financial difficulties and goes under half way through the lease term. Consider having an amount of money held in an account which you can call upon to pay for any remedial work. Remember that the amount will need to be reviewed by an expert at least every 5 years. Some developers will ask you to rely on the planning authorities’ bond or account, but only agree to this if you have the right to call on that amount too.