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Ask HN: My Farm Approached by a Solar Company to Lease Land-What Should I Learn?

6 points by giltleaf ↗ HN
A farm I'm affiliated with in Maryland was approached by a solar developer looking to turn 10 acres (level) of it into a solar field.

I want to make sure that we're getting a fair deal with good contract terms. They are asking for exclusive rights to the land (much larger than their 10 acres) for a 25 year term. I also don't know how to begin researching competitive pricing for a project like this. We will be leasing the land.

12 comments

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kspaans
To be clear, they are asking to lease >10 acres of land for 25 years, but only plan on using 10 acres of it for solar panels? Is the extra acreage for access roads and power lines?

Are they going to start a competing farm? :P

giltleaf
They are asking to lease 10 acres and use it all for solar field development. I'm not sure what portion of that, if any, would be used for access roads etc.

Apologies if that was unclear.

Edit The line in their proposal that's concerning is "Exclusive right to property to construct and operate the solar farm"

I don't know if that extends beyond the 10 acres they want to lease or not.

hanniabu
I would ask them for clarification in writing on that. They might just mean exclusive as in you can't lease land to another dollar farm that could compete with them. Or they may be giving you a blanket statement so they can stop you if anything is planned that will affect their business such as 15 years from now somebody offers to lease your extra land to put up building which would in turn cast shadows in their panels.
kspaans
The building is a good point. I remember when living at a student housing co-op we were planning (or had already signed a contract, I forget) to put solar panels on the roof. A developer wanted to put in a bunch of 25-story buildings in the lot next to us, which would have cast a shadow on our panels. We brought it up when the planning was discussed at the town council. I'm not sure what happened as I moved away shortly after that.
giltleaf
That's a good point. It's a lot of land that probably won't be developed, but we've been exploring other projects like agroforestry etc that might cast shadows. Will definitely ask for clarification. Thanks!
JSeymourATL
One way to source market price benchmarks is to start shopping for a good commercial property/farm lease attorney in Maryland.

Try the State Bar for a referral, ask for any specialists in solar >http://www.msba.org/default.aspx

Then ping the attorney, ask for a brief 10-15 minute call. You may be surprised to find some helpful ones. Those will be the individuals you shortlist for a retainer. More importantly, a good attorney will help protect your lessor rights.

giltleaf
This is an interesting route to go that I hadn't thought of to get an idea of pricing. I've mostly been going directly to people that sell solar credits and either asking them to put me in touch with developers or if they had an idea of their own.
brudgers
The first step is to decide if you're really interested in selling the land, since that's the closest thing to "exclusive rights" for 25 years that most people have as a point of reference. Then decide if you're better off selling the land, which you might be since a lessee can leave behind a toxic pit of hurt and your recourse will be squeezing blood from a stone while paying for compliance.

The next step is rudimentary due diligence. Ask for a list of portfolio projects that demonstrate a track record of success with similar development projects. The thing to know is that you don't want to deal with amateur developers or professional grifters (or amateur grifters for that matter).

Lastly (relative to before the beginning). If you decide you want to "sell", talk to a real estate attorney...or rather your real estate attorney. Putting "solar development" on your land may not even be legal (though it might) and the terms offered by a "solar developer" may not be very good (though there's a slim chance they are).

To put it another way, real estate development is about floating ideas and seeing what sticks and then it's often a matter of being overly optimistic when spending other people's money. To a first approximation, most real-estate development deals don't happen.

Good luck.

giltleaf
This is a really important step back to take to get the 20,000 ft view and make sure we're not making any mistakes while lost in the minutiae of the deal.

We are interested in leasing the land. One thing that they did explicitly write out was that they would be responsible for returning the land to it's original condition so that's not as much of a worry.

The developer did provide us with a brief resume, but I'll be sure to get more specific.

That's some good insight into the development process and thanks!

brudgers
The lease may require the lessee to return the land to the original state. Unless the money to do so is escrowed, there's significant likelihood that it will not happen at their expense. Businesses fold. They go bankrupt. Industrial sites go on the Superfund list. Power generation no matter how green is still industrial.

A great deal of real-estate development happens via limited partnerships. These are specifically designed to be easy to terminate. Real estate development projects are often designed to be sold on and then the LP folds.

Suppose the lessee doesn't restore the landscape at the end of the lease. Is your organization willing to lawyer up?

Will your organization necessarily benefit from returning the land to its original condition? The value of the land with the lessee's improvements may be higher than in the original condition.

Finally, is leasing the land for an industrial process really consistent with the long term vision and mission? The feel good of green energy promises shouldn't outweigh those values. A project that requires a subsidy to be feasible is less likely to be viable over the long run. By which I mean, if your organization doesn't lease the land, the developer should still be able to make a go of their project via an ordinary real-estate transaction. If the developer cannot, it's a red flag on their pro forma.

giltleaf
Does anybody know what the normal price/acre a developer would pay for a project like this?
Mz
A lot of solar development is compatible with other uses. This is the appeal of putting solar on farmland: It is common to be able to graze animals in the same area.

I would think of this like mineral rights. Mineral rights on land is distinct from other uses of the land and can be sold separately.

If there is a lot of money at stake, consider taking the contract to a lawyer specialized in land use laws. I would do everything in my power to lease them only exclusive rights to developing the solar potential of the land and keep the right to also do other things with the land that do not interfere with their solar power development.