Solar Farms – Benefits and Considerations for Landowners

The industry widely quotes around £1,000 per acre returns for renting land for large solar photovoltaic (PV) developments, a figure that clearly exceeds agricultural returns.

Leases often last between 25 and 40 years, and the landowner will have an increased, guaranteed source of income from the land for the term.

Rents are generally index-linked, meaning that rents keep up with inflation throughout the lease term.

Turnover rents offer another incentive for landowners, with many achieving percentages of around 4-6%.

This means that where the specified percentage of the developer's revenue exceeds the acreage-based rent, the landowner is paid a top-up between the two figures.

Achieving these rates will depend on the amount of solar radiation the site receives (we are seeing lower rents in the north of the country where solar radiation levels are lower) and cost considerations, including grid connection, planning and installation.

Solar farms have minimal ground-level impact, meaning landowners can continue to graze livestock (usually sheep or poultry) on the land.

Raising the height of PV panels is not generally necessary to accommodate sheep grazing because the vegetation is accessible to sheep beneath the panels at standard heights.

Grazing can also benefit solar operators by reducing site mowing and other vegetation management needs.

Alternatively, the land underneath the panels could be sown with grass mixes and wildflowers to attract bees and pollinators and increase diversity.

Solar farms have a much lower visible impact than other renewable energy technologies.

They can also be screened and do not emit any noise.

Entering into an option and lease with a renewable energy developer will mean that the land is "locked in" to that use for a long period.

In addition to the initial lease term, solar panel leases often contain an option to renew for a further term.

During the lease term, landowners will be unable to use the land (or any adjoining land) for other opportunities that would obstruct or affect the operability and efficiency of the solar project.

One of the most important aspects to be agreed upon is reinstatement, which cannot simply be left to the developer's goodwill in the lease's final years.

Many of the renewable energy companies involved are special purpose vehicles (SPVs) with few or no assets.

The SPV could easily be dissolved, exposing the landowner to the liability of having to dispose of panels, cabling, etc. and reinstate it.

Landowners should ensure that the lease includes arrangements for a decommissioning bond. This can be accumulated throughout the lease or set aside from day one.

It is common for developers to pay a percentage of the reinstatement cost into a bond, guarantee, insurance policy, escrow account or other security from year 10 or 15 on an annual basis until the total reinstatement cost is secured.

The value of the decommissioning bond required is determined by the mechanism in the lease, usually by assessment by a third-party surveyor.

The landowner would be entitled to withdraw from the security if the developer failed to comply with its yield-up and reinstatement obligations within a reasonable period after the end of the lease.

Landowners should also ensure developers produce an agreed schedule of conditions before the commencement of works to install the solar facility, and the lease should provide that once the project ends, the developer is obliged to return the land to this condition.

Suppose there are any underground works or cables that the developer is not required to remove.

In that case, the lease should oblige the developer to leave those works in a safe condition, free from hazardous structures and materials, and comply with environmental laws and all other relevant statutory obligations.

The lease should also contain an indemnity from the developer regarding all environmental damages and liabilities in respect of hazardous materials brought onto or disposed of on the land by the developer that migrate from the land onto neighbouring land.