What are the key considerations regarding solar options? Part 1

As the world continues to shift towards a sustainable and reduced carbon future, renewable energy projects are becoming increasingly more attractive and encouraged for both landowners and developers alike. To realise the transformative power of solar energy and its ever-growing importance within the legal and agricultural industry, this article delves into some key considerations to have in mind when embracing solar projects, with a separate article on ancillary documents to follow.

Duration

Firstly, it is essential to talk about duration. Duration of the solar option is a critical aspect worth carefully considering. With the state of current grid infrastructure not yet able to handle the consistently building drive towards renewable energy fuelled by not only net zero targets, but also increased energy costs, developers are increasingly having to face significantly longer waiting periods for grid connection for their green energy projects. As such, it is not at all uncommon for option agreements to total 10 years in total duration, or sometimes even longer.

With this comes some issues for the developer if they have secured planning permission early on in the process, as it will more than likely lapse after three years. Thus, to avoid this from happening developers will tend to require the ability to be able to implement planning permission during the option period, but only to the minimum extent required to satisfy the local authority. Entry for such purposes should be subject to the payment of a licence fee, whereas other developer rights of entry, such as for surveys and investigations, would not ordinarily see this.

Likewise, the length of leases themselves should the option be exercised are typically now longer than they used to be. Whereas 21 years used to be the common and expected term, 30 years is now the most commonly seen, usually alongside options to extend that by a further five and/or 10 years. In fact, 40-year terms are now no longer uncommon.

Compensation

Secondly, compensation must be considered. Developers should always be prepared to pay for crop and any scheme losses, penalties or clawback resulting from the exercise of rights under the option and lease, as well as the initial grant of the lease. Generally, this is accepted for the exercise of rights during the option, and on the grant of the lease, but not always for the exercise of the right during the lease. Sometimes, this is rejected on the basis that rent will be paid. However, it is extremely rare for rent to be paid over an area where rights will be enjoyed during the lease, so compensation should ultimately still be paid. Similarly, some developers will seek to limit their own liability for compensation to schemes that are in place when the option is entered into, or to a fixed sum. This is more understandable given any scheme could impact their intended use of the land, but given the typical length of options we would always argue on the landowners behalf that they should be able to enter into new schemes and that the compensation provisions apply equally to them.

It is worth noting that compensation will only be paid in the event that any damage caused cannot be made good to the reasonable satisfaction of the landowner. As solicitors specialising in renewable energy, we always ensure there are provisions requiring this, including for any damage caused to land drains and or irrigation infrastructure often by reference to a schedule of condition.

Retained land

Retained land, which will not be leased but still identified in the option can often be quite wide and will consequently be subject to restrictions over the activities that the landowner is able to carry out both during the option and the lease. This is primarily to protect the operational efficiency of the renewable technologies, but also due to the developer not immediately knowing where they will require access or cable rights.

Sterilised land

Sterilised land is land that cannot be accessed or economically farmed and should be included in the lease demise for these reasons. Sometimes this will be at the full rate of rent, sometimes at a reduced rent. Any land that the developer only requires for environmental purposes may similarly be subject to a lower level of rent.

Assignment

Typically developers are free to assign to a group company and funder, or even change its share structure without landowner consent. Even third-party assignments that require landowner consent need to be understood in the context of a Special Purpose Vehicle (SPV) company having little covenant strength, so it is fairly routine for a brand new entity to demonstrate they are of equal standing. The company that originally approaches you may not therefore be the party that exercises the option and occupies under the lease.

The Birketts view

It is certainly true that solar options offer a beacon of light for renewable energy, revenue generation and sustainability but inevitably they come with a complex set of considerations that must not be neglected. It is vital that landowners and developers collaboratively approach these agreements with a mindset that ensures that every aspect is meticulously negotiated and agreed upon in order to safeguard not only investments being made but also land values and ultimately land.