There are lots of issues to consider when negotiating a wind or solar lease in Texas. Attorney Shea Krauskopf covers many of them in this video. If you have questions and would like an appointment, please call or text 800-929-1724. Appointments can be in-person, online, or by phone.
Summary of Negotiating a Wind or Solar Lease in Texas
Hello, my name is Shea Krauskopf. I’m an attorney with the law firm of Wadler, Perches, Hundl & Kerlick, and I’m making this quick video today to discuss some key implications when negotiating a solar and wind lease.
If you’re a landowner in Texas, and you’re watching this video, you’ve likely been approached by a renewables company, as we’ll refer to them throughout, with an offer to develop a solar or wind project on your property. While these offers may result in substantial monthly or quarterly payments, it’s also important to consider the effects they will have on your property.
So today, we’re going to quickly discuss several key points. Those essential issues are taxes, restoration, your mineral rights, and the limitations the solar or wind lease will have on your property and potentially your adjacent properties.
Before diving into these key points, it’s essential to remember that this lease is simply an option contract. So just because you’ve signed it doesn’t mean that the project will happen. It merely means that the solar company or the wind company will have the right to exercise that option to develop a renewables project on your property. So keep that in mind before you start negotiating these leases.
Tax Implications of a Wind or Solar Lease
So to get started, we’re going to discuss the taxes. In Texas, the agricultural exemption is very important and very valuable, as we all know. These projects, especially solar, will have a big impact on your agricultural exemption. Now the renewables companies recognize these issues, and they’re more often than not willing to try to rectify that issue in some way. And they usually handle that by reimbursing you each year for the value of that lost ag exemption.
So it’s important to keep in mind that you need to negotiate the structure of how you’re going to be reimbursed. Depending on your financial situation, you can be reimbursed either by the solar or wind company paying taxes outright or repaying you later. Please keep that in mind.
Don’t stop there. Getting an ag exemption is difficult in Texas. You have to have your property under ag production for at least five of the last seven years. So once the project is terminated and the property is restored, there’s going to be at least a five-year window where nobody’s reimbursing you for your ag exemption. That’s why it’s important to seek what we call a requalification fee.
Now, this requalification fee will aid you in requalifying for your ag exemption. And it’s handled in several ways. A common option is for the solar or wind company to pay you a flat fee of an estimated requalification fee upfront when they start constructing the project. And you will then use that money to help you requalify 30 to 50 years later down the road.
This requalification fee should be secured somehow, and we’re fixing to discuss the restoration bond that the solar companies must post. So if possible, you should try to get them to include that requalification fee within the restoration bond to ensure it’s secured.
Another option is to have them continue reimbursing you for that loss of your ag exemption for at least five years after the property is restored.
Restoration of Your Property After the Lease Ends
So moving forward to restoration, a key concern of most landowners is how the property will be restored. Thankfully, the Texas legislature has recently enacted some new statutes under the Utilities Code that mandate that the solar and wind companies restore the property close to its original condition by taking several steps.
More importantly, however, the new legislation mandates that the solar and wind company must post a security bond. So it’s frequently referred to in the lease as the surety bond or the restoration bond. This restoration bond will be put in place generally 10 to 20 years into the project’s life. And it’ll be for the value of what an estimated cost of removal is less the scrap value. That’s almost always the structure that these leases go by.
Mineral Rights and a Wind or Solar Lease
So moving forward, I’d also want to discuss the mineral rights. Depending on where the project is located, the mineral rights beneath the property could be very valuable. So it’s important to keep in mind the mineral estate when negotiating these leases.
It’s also important to keep in mind that the mineral estate is the dominant estate, which means in theory, the mineral owner could come in and remove solar panels and start drilling the property. Now, of course, that’s just in theory, but it is a possibility.
So that being said, it’s essential to take care of this. And it’s also crucial if you own the surface and the minerals underneath, you still want to be able to develop those minerals.
So there are several ways of handling this. The most common way is a drill site designation or a mineral reservation. This is a holdout of five to 10 acres of land on which the renewables company will not be able to develop and will strictly be reserved for you to come in and explore and develop the minerals beneath the property.
It’s also important to make sure that there is a corridor leading to the mineral holdout or the drill site designation to allow electricity to be run, pipelines to be run to preserve access to the mineral reservation. So it’s super important to consider those aspects.
But you know, another option is also to consider a mineral waiver. Depending on where the property is located, the minerals beneath the property may not be as valuable. So many times, renewables companies will offer a mineral waiver in which you legitimately waive your rights to produce the minerals beneath the property in exchange for a hefty upfront payment. So that could be an attractive offer to several landowners.
It’s also important to keep in mind that even if you’ve reserved yourself a drill site designation, these leases will often have additional limiting provisions, such as a broad term saying that you agreed not to interfere with their production of energy. So, in theory, again, drilling your well could create a lot of dust and a lot of shadows and could interfere with the solar farm, for example. So it’s important to negotiate that provision carefully to ensure that it doesn’t apply to the production of your minerals.
How a Wind or Solar Lease Can Limit the Use of Your Property
Moving forward, I also want to quickly address potential limitations that these projects can have on your property and any properties you own adjacent to the project. So as mentioned previously, almost all of these leases will contain a provision stating that you will not substantially interfere with the renewables company’s ability to produce energy. So that alone is going to be a burden, but also, these leases will contain provisions saying that you can’t develop certain structures such as tall buildings or place billboards on your neighboring property.
Or for example, on wind leases, you won’t be able to construct tall barns that could potentially block the wind and so forth. So there are a lot of limitations that they’re going to have on your property, not to mention, you know, a solar farm is going to take up pretty much every square foot of your property if you’ve leased every square foot of your property. And also not to mention you won’t be able to access the property most of the time on your solar farm.
Now it’s quite a bit different under a wind lease, where you’re still going to be able to farm and the likes around it, but these restrictions can be substantial. It’s important to remember that these limitations could impact your adjacent properties.
The limiting provision that you will not substantially interfere with the renewables company’s rights to produce energy could be interpreted to limit your farming activities. Suppose you’re kicking up a lot of dust in your farming operation on the adjacent property. In that case, the renewables company could say that the dust is blocking the sun and interfering with the company’s right to produce that energy off the sun.
So it’s super important to carefully negotiate those provisions to not limit your existing use of your adjacent properties.
Get Help from a Knowledgeable Attorney
These leases are long and laborious and almost always slanted in favor of the renewables company. Therefore, it’s super important to hire an attorney who has experience negotiating these types of leases. Again, my name is Shea Krauskopf, and I’m an attorney with Wadler, Perches, Hundl & and Kerlick. And I thank you for watching this video.
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