Easements & Leases

Easement

View more information about what an easement is:

  • An agreement where the developer is allowed to have limited use of the landowners' land for their gains.
  • Can be exclusive or nonexclusive. Exclusive easements are only available to a specific developer, whereas nonexclusive easements allow for the possibility of others to use the land together (both the landowner and the developer can both use the land).
  • The landowner gives up few rights of their land to the developer
  • Can be temporary or can be permanent.
  • Payment is usually in a single lump-sum payment, but may also be through a series of periodic payments. The payment method is usually determined by the exclusivity and duration of the easement.

Lease

Review what a lease is:

  • A lease is where a developer rents the land from the landowner.
  • Creates a landlord-tenant relationship where the developer is accountable to the landowner
  • The developer often has exclusive use of the property stipulated in the lease agreement.
  • The ability of the landowner to use the land must be included in the terms of the lease.
  • A lease is for a set period of time.
  • Payments are usually periodic.

Option

An Option provides the exclusive right to lease or garner easement rights in the future. Basically where the developer agrees to pay you to essentially hold the land for him, in the hopes that they will use the land in the future. It can allow the developer to conduct tests to see if the land has suitable wind resources. An option should contain parameters about expected future use and exclusivity rights before the developer has access to the option. It should have a specified price and a set length of time for the option. Also, provisions for extending the option should be stated in the original contract.

Example of Rights

Examples of Rights that Developers often want:

  • Buildings to house equipment and tools, electric substations/ transformers, transmission towers and lines, and roads may need to be constructed to allow for ease of access to the site.
  • Landowners should beware of provisions often dubbed "catch-all" provisions that allow the developer to engage in any activity that they deem necessary for the project. The landowner should have included in the contract that the developer has access to only what was stipulated in the contract, and that any other provisions or actions not stated must garner the consent of the landowner before any sed action can be completed. This helps prevent the degradation of the landowners property, and prevents that developer from charging the landowner for extra services.
  • Right to conduct tests, and studies on the land before the turbines are installed
  • The right to construct the turbines and all of their parts (turbine blades, foundation, tower, pads)

Rights Maintained by the Landowner

View the rights often maintained by the landowner:

  • The landowner might want to include a "catch-all" phrase that allows anything not clearly stated as belonging to the developer to be considered the landowner's property thus giving him free use.
  • The right to construction or expansion of property as long as it doesn't interfere with the resources or turbines
  • The right to hunt on the land, however risky because the landowner may be liable for any damages that accrue.
  • Right to use the land for grazing of cattle, agricultural uses, crop cultivation and harvesting
  • Some even allow that logging, or mineral/ gas exploration be conducted on the site

Duties of the Developer

Violation of any of these should be at no cost to the landowner:

  • Comply with all federal, state, and local regulations
  • Obtain and comply with all necessary permits
  • To only use the land for the stipulated and purposes, and only use the land contained in the contract.
  • To properly handle, store, and dispose of any hazardous substances/ materials used in the development process.

Duties of the Landowner

  • Allow the developer to develop the land assigned to their purposes without incident or delay.
  • May be asked to assist with the acquisition of necessary permits
  • Refrain from any activity that may decrease the amount of the wind resources being used by the turbines.

Other Things to Be Aware of

  • -The Developer should be required to pay for any increase in property taxes stemming from the installation of the wind facility
  • -The Developer should be required to pay for any utilities charge for services rendered to the facility (water, electric, etc.)
  • -Developers often want "Assignment Rights", which allow them to sublet or contract out their operations or acquired land to another Developer. The landowner should provide in the original contract provisions which make the original Developer liable for any damages or deviation from the valuation of the property
  • -The Developer should have full insurance coverage of the wind turbines

Compensation Examples from New York

  • 12 MW project- expect around $2000-4000 per turbine/ year (2000)
  • 320 MW project- $5,000-6600 per turbine/ year (2006)
  • Royalties $1200-2400 per MW/year
  • Royalties $3000 per MW /year

Factors Influencing Compensation

  • Access to transmission lines- if already present and with available capacity are desired by Developer because they do not have to put up the expensive lines. Will likely lead to higher compensation, and a good bargaining chip come negotiation time.
  • Land value- the landowner should weigh the benefits and costs of the original use of the land to the expected value of the land if sold to a Developer. Also land with many high value uses can command higher compensation for wind development there.
  • Price of Electricity- the higher the price of electricity the larger the royalty compensation will be. In New York where the average price of electricity is around $0.20/ kwh the royalties can be high.
  • RPS state- Renewable Portfolio Standards or RPSs are legislation that requires that a certain percentage of the electricity generated in a state come from renewable energy sources can increase the compensation levels to a landowner. New York has an RPS and wind is the most widely used resource to meet the standard.
  • Turbine size- Generally speaking the larger the turbine the greater the compensation.
  • Wind resources- higher levels of energy production will produce greater royalties to the landowner. Also in areas with low access to wind resources or low amounts of land available with high demand can create competition which will benefit the landowner. If windy areas are abundant and demand is low, then this will drive down compensation levels.

Types of Compensation

  1. A single lump-sum payment
  2. A fixed payment at set intervals
  3. Royalty payments based on sales of electricity
  4. A combination of methods

Combination Method

The best option is a combination method where there are fixed payments made at set intervals ($X per turbine at the beginning of each year) and royalty payments based on the productivity of the turbines. Evidence also suggests that landowners working together are more formidable than a single landowner to a Developer. If the first Developer to approach you does not meet your expectations contact other Developers until you find one that will agree to your terms.

The installation of a wind project on your property should be beneficial to both the Developer and the Landowner. Always seek legal advice before signing a contract, and consult the experts and perform your own research before entering into any arrangement.

Source

This information was compiled by Greg Gronski, Alternative Energy Research Assistant. Information is taken from: