A Primer on Wind Development
As I prepared for this column, I knew that I would like to convey the underlying risks to landowners who choose to enter into such legal relationships with wind developers. Clearly, wind farming has the potential to provide significant economic benefits for rural landowners. However, substantial peril exists that landowners who don't carefully evaluate proposed agreements with developers can be taken advantage of significantly. Landowners should have any proposed agreement evaluated by legal counsel and attempt to negotiate any unfavorable terms. Failure to do so could result in many years of dissatisfaction for landowners.
MORAL: NEVER SIGN YOUR NAME ONTO THE PASSENGER LIST OF A ONE WAY PRISON SHIP.
The following has been excerpted, with permission, from a document developed by Roger McEowen PhD, Director of the Iowa State University Center for Agricultural Law & Taxation (CALT). A link to this insightful 17 page document is available by clicking here.
Legal Issues for Landowners
A wind energy agreement should never be negotiated without first having the agreement reviewed by legal counsel. Wind energy agreements are long-term agreements that will impact the land subject to the agreement for many years, likely beyond the lifetime of the landowner who executes the agreement. The following is a small sampling of questions that landowners should ask when analyzing any wind energy agreement:
- How much of the land will be subject to the agreement?
- How long will the land subject to the agreement be affected?
- Based on the property rights that are given up, are the proposed payments adequate for the present time and for the life of the agreement? (Note: The answer to this question requires an understanding of the mechanics and economics of wind energy production.)
- If the agreement offers an up-front lump-sum payment, is the payment representative of a fair amount for the rights involved?
- What are the tax consequences of the wind energy payments that will be paid under the agreement? (Note: The answer to this question depends on tax changes at the federal and state levels; the area is in an almost constant state of flux.)
- Does the developer want to develop the land or simply use a portion of the surface for a term of years?
- Does the agreement guarantee that a set number of wind energy turbines will be constructed on the land by a specific date and, if not, is the developer willing to guarantee a minimum amount of payments?
- Are payments under the agreement based on revenues generated by the wind turbines? Can the landowner get information as to how the owner's revenue will be calculated?
- Is the developer able to sell or transfer without the landowner's consent any of the land use rights obtained under the agreement? If so, will the original developer remain liable if the new developer or holder of the easement right does not pay the landowner or otherwise defaults?
- What events trigger the developer's right to terminate the contract? Can the developer terminate the contract at any time without cause? If so, how are payments due under the agreement to be handled?
- What termination rights does the landowner have? How does the landowner exercise those rights?
- If the agreement is terminated, whether by agreement of the parties or otherwise, what happens to the wind energy structures and located facilities erected on the property? What is the developer required to remove? How soon must structures be removed? Who pays for their removal?
When a wind energy agreement is being negotiated, certain issues are critical to the creation of an equitable agreement. Unfortunately, a common problem with many wind energy agreements is that once they are proposed and submitted to a landowner, the company wanting to execute an agreement tends to refuse to negotiate changes to the terms of the agreement. The company's ability to refuse to negotiate terms of the proposed agreement will depend largely on whether a landowner has meaningful options and competent legal representation.
