Ringquist Negotiates Solar Lease for Farmland Investors

“Farm real estate – what my partner and I do – is growing nationally as an investment category,” begins farmland investor Neil Robinson. “So you’re going to see a lot more of this sort of new wave of agricultural technology as both the population and renewable energies grow. There will be much more demand for this within the next 20 years.”

The “this” Robinson refers to is solar leases on rural lands – and he knows a little something about it because, with the help of attorney Steve Ringquist, Robinson secured a solid solar lease on some farmland he and his investment partner have owned for more than 15 years.

“We’re not farmers,” Robinson clarifies. “We lease the land to a farm family, which we’ve done as long as we’ve owned it. It’s about 250 acres total. A solar energy company approached us about dedicating a portion of the farm – just about 30 acres – to solar construction and production. Well, we lease our land out in periods of three, five, maybe seven years. But the solar lease term is 40 years, which was intimidating – especially since it will be my heirs who ultimately have to live with the choices I made about this project.”

Robinson wisely decided to hire an attorney to help him negotiate the lease, and was referred to Ringquist by a shared colleague.

“The solar company comes armed with extremely experienced lawyers, and solar leases are their area of expertise,” notes Robinson. “They either have in-house counsel or they get counsel who are seriously skilled at this. Not that their intent is necessarily to do harm to a potential lessor, but the agreement will be written to benefit and protect them and their interests first.”

“Solar lease agreements are complex and lengthy documents,” Ringquist agrees. “And solar use is virtually incompatible with other property uses; solar farms require many continuously placed panels that prevent other uses of the surface of the land. So with the average lease lasting from 20 to 50 years, tying up your property for literally decades, it’s critical to carefully evaluate the lease terms.”

Solar leases typically contain two phases: the development phase and the operations phase. During the development phase, the solar company is exploring whether the project will work – verifying construction suitability, analyzing capacity and transmission capabilities, conducting environmental studies, and performing other information gathering. Once the project is approved and constructed, the operations phase is ongoing with the production and sale of the solar energy.

“What the solar company will pay is negotiable,” explains Robinson. “I used information from a neighboring farmer to establish the amount I was willing to accept; so ten times what we’re currently getting. The lease agreement benefits us two ways: it improves the cash flow of the farm – the economics of the overall operation go way up – and it raises the value of the farm.”

While Ringquist suggested including a built-in payment escalator – often based upon the consumer price index, a regularly posted inflation rate, or a percentage annual increase – to accommodate for the rising cost of living over time, Robinson was satisfied with a flat fee. But that was only the beginning of Ringquist’s list of considerations and recommendations for his client.

“First of all, we did some due diligence to ensure the solar company is reputable,” Ringquist begins. “The developer must have a strong track record, local regulation familiarity, and a commitment to responsible land use. Next, the lease needed to specify where the solar panels will be on the property. Typically we examine the road to the project, recorded easements, permits, or agreements to cross land, whether the developer will be storing equipment or supplies, or erecting buildings or other structures on the property – a repair shop, communication tower, or electrical substation? Whatever they bring to the land should be fully insured and maintained by them – including road management, vegetation control, equipment inspections, and infrastructure repairs. These are all items that should be specified within the lease agreement.”

Ringquist also made sure Robinson checked with his bank to make sure they were OK with the project, and if the developer took a mortgage out on the lease, that it wouldn’t negatively affect the landowners’ mortgage. Additionally, he put in a reservation regarding mineral rights – legal ownership and use of the natural resources found beneath the land, typically including oil, natural gas, coal, metals, or ores.

“If there are minerals the landowner wants to reserve and keep from the solar company, that must be specified,” explains Ringquist. “We had a mineral rights provision in the document, and the solar company added no drilling or other surface activity on the project property to recover any minerals.”

Tax implications are another important consideration, especially since a successful solar farm will likely increase land value. Ringquist advises the landowner continue to pay the property taxes, with the developer responsible for other taxes and tax increases that result because of the solar project Finally, Ringquist recommended reclamation bond to pay for the cost of equipment and supply removal should the solar company go bankrupt or disappear, or whenever the lease comes to a close. Returning the land to a condition once again suitable for farming can be prohibitively expensive, so this is essential to include in a solar lease agreement.

“We want to ensure the solar development doesn’t impact the tenants, their farming, agricultural production, or whatever they use the property for,” Ringquist affirms. “Or their neighbors – the company had included some nuisance waiver language, that Robinson was OK with the solar operation producing ‘some nuisance, visual impacts, or possible increased noise levels to him, tenants, or neighbors.’ It was way too broad of a waiver, so we got it removed.”

Robinson’s solar lease negotiation took about a year to complete, but the he considers the time well spent to make sure the agreement works to his – and his heirs’ – ultimate benefit.

“A 40-year lease requires someone with a longer view – and a longer life,” chuckles Robinson. “Steve’s collaborative approach, comprehensive analysis, and wise counsel were invaluable for us, but we won’t really know the full benefits of his work until a few decades down the road. I probably won’t be around, but Steve may be, and when the solar company says, ‘Now we’re going to do XYZ, and you’re out of luck,’ he and our heirs can say, ‘Wait just a minute – no, you’re not, because we’ve got these protections in place in the agreement.’”

As investment in renewable energy continues to grow, combined with Texas’ wide open and mostly sunny spaces, landowners and developers will continue to explore new paths for these types of leases. Robinson says his best advice to fellow landowners is to seek experienced legal counsel to help rest assured all the details are covered, now and well into the future.

“We depended upon Steve to put his specific expertise onto the printed page,” Robinson concludes. “He did that, and even discounted his fee so the solar company’s reimbursement would cover it. Steve did an excellent job, and it gives me great comfort knowing that.”