Every year, companies contact many farm families seeking to negotiate agreements for the use of the families’ farmland. Whether it be wind, solar, electric transmission, pipelines or any other easement or lease agreement, the same legal principles apply. The biggest concern among landowners is how to engage in a conversation with company representatives and how to determine if this is the right opportunity for their family.
I don’t intend this column to address whether farm families should or should not enter into these opportunities. I just want farm families to be prepared when and if they are approached about such agreements. Let’s talk through an example.
Questions to ask
A farm family is contacted by an out-of-state company that it has never heard of that is seeking to build a solar (photovoltaic) collector farm. A company agent (oftentimes an independent contractor or nonemployee) visits the farm and describes the project.
The agent states that upon an initial review of the land, it is suitable for such an installation and asks the family to enter into a long-term lease or easement agreement. This would give the company the right to use the land to produce energy that can then be sold. The agent says that the company is interested in the location because it is next to a power line that feeds into one of Iowa’s larger cities.
Let’s also say that the company’s initial offer on a per-acre basis sounds attractive. What questions should the family be asking the agent? When should they involve their attorney in these talks? What if the company runs into financial problems or government subsidies go away? These are common questions, and they apply to all types of leasing agreements involving renewable energy.
Remember, a lease is really just a contract in which the party owning land conveys a portion of land to another party to use for a specific time, usually for a specific periodic payment. An easement is a similar concept, but it is a grant of a right given to another to use land you own. For instance, utility companies generally request easements for utility-line installations.
Here are some questions to ask:
- Is the use compatible with my farming operation?
- When does the company expect to actually install these transmission lines, wind turbines, solar panels, etc.?
- What incentives (i.e., government subsidies) are available to these companies?
- In the event of financial distress, what will the company do to ensure that I am paid?
If you are presented with an easement by a company affecting your property rights, it is important to review the agreement and immediately involve your attorney before entering into any agreement. Your attorney may ask some of the following questions:
- What is the term of the agreement? And for how many years?
- Are there options to renew after the initial term expires?
- Is the agreement assignable? (Can the company sell its rights under the agreement to another company?)
- What is the payment, and how is it structured?
- Am I protected from liability as a landowner if a catastrophic event occurs?
- How does liability insurance factor in?
- What access rights, and through what routes, does the company have?
- If the company damages my crops or compacts my soil, what does the agreement provide for compensation?
- In the event of a legal dispute, is there a mandatory arbitration or mediation clause? And if so, do I have to give up my right to a trial by jury?
If you think about it, these questions are applicable to many of these renewable energy projects. On a smaller scale, landowners are often approached by their county governments with easements or offers to purchase small portions of land for the improvement of highways, bridges or other infrastructure. Many of the same questions apply to these negotiations.
Whatever the project, asking the right questions and consulting with experts and your attorney is key to understanding the rights and responsibilities you may assume by entering into a long-term easement or lease arrangement.
Remember, there is nothing wrong with asking questions and taking time to review with your attorney. Sometimes landowners can feel pressured to act quickly to take advantage of these opportunities. Most often, reputable companies and agents will encourage you to thoroughly evaluate the project and the costs and benefits to your operation.
Future generation impact
It’s also worth mentioning that entering into these agreements not only affects your rights as a landowner, but also affects the rights of future owners — oftentimes children, grandchildren or purchasers of real estate.
It is important to remember that these agreements most often “run with the land,” meaning the agreement will be recorded and will be in place even when you are no longer the owner. Hopefully, these tips will increase your comfort level in handling initial talks and meetings and involving your attorney early in the conversation.