Leasing Your Farm’s Energy Resources

Posted: June 5, 2005

You need to seek qualified legal advice on any contract that you are offered before signing.

In last month’s article on “Wind Farming,” I addressed the issues involved in site selection for developing wind farms. What if you are contacted by a company wanting to lease the wind (or any other energy resource) from your farm? Don’t be too quick to sign away on your potentially valuable resource. If the deal sounds too good to be true, it probably is. Don’t feel pressured with “It’s now or never.” Of course, you don’t want to drag your feet too long, or you may loose an opportunity for an attractive cash stream coming your way each year for the next 15 or 20 years.

First of all, you need to seek qualified legal advice on any contract that you are offered before signing. There are numerous issues that you (and your legal counsel) must understand and you must make sure that these issues are adequately considered and taken into account before signing any legal documents. The issues include:

  1. Are you as the landowner going to be held liable (totally or partially) for any accidents or consequences of the company extracting, using, and processing the energy? Consequences can include such issues as increased vehicular traffic, noise, vibration, water pollution, damage to the eco-system, impact on wildlife and migratory birds, interference with neighbors’ radio and TV signals, vandalism, and some rather intangible factors dealing with ambience and eye sores.
  2. Will you be paid a flat annual fee or will you receive a percentage of the value of the energy sold each year? If you will receive a flat fee per year, is there an inflationary factor built into the contract?
  3. What is the length of the contract? Under what conditions can you as the landowner terminate the contract? Under what conditions can the developer terminate the contract? Is there a provision for contract renewal?
  4. What happens if/when you sell your farm or transfer it to your heirs if the energy-leasing contract is still in effect?
  5. What is the impact of the proposed infrastructure developed on your farm on the farm’s assessment value and then your property taxes?
  6. How much right-of-way access does the developer require for the original installation of the equipment, for the dayto- day operation of the equipment, and for the periodic maintenance and repair of the equipment?
  7. To what extent will your normal farming operations be impeded by the contract being considered? Will you be sufficiently compensated for any imposed impediments?
  8. Who is responsible for obtaining the necessary zoning approvals, permits, and impact statements? Who is responsible for the expenses (now and in the future) associated with necessary modifications to meet zoning requirements?
  9. What happens to the infrastructure developed on your farm at the end of the contract period? Who is responsible for dismantling the infrastructure and returning the land to its original use after the contract expiration?
  10. What protection do you have if the developer “just walks away” from the project before contract expiration and declares bankruptcy? What are your likely expenses then?

These and other issues must be evaluated before signing on the dotted line. The bottom line message is “Seek qualified legal advice.”

Dennis Buffington, Agricultural and Biological Engineering