Tips for Wind Lease Negotiation in California
So you got an offer? Initial contact from a developerMost Wind Energy Developers will find you through your parcel number at the County recorder's office. Most developers will send you a lease and/or an option agreement with highlighted areas to sign. Some send a waiver or neighbor agreement The first offer is negotiable and you should not sign any of these documents without an attorney review, particularly any waiver of zoning, setbacks, or easements.
Some developers will also show up at your doorstep toting documents. Again, always contact an attorney to review the contracts before signing them. The initial contracts contain and omit various terms that the landowner needs to understand fully. Most wind energy leases tie up land for 34 1/2 years and involve the release of many landowner rights.
Also, where there is one interested developer, there are often others. Do your research and find out what other companies are developing near your parcel. Check with neighbors and even contact other developers before you sign.
Options to LeaseMany wind energy developers will try to get you to sign and Option for wind development and exclusive lease rights before you sign a lease. This generally consists of an offer of a signing bonus, or some money upon executing the Option, and then additional payments in three or five year increments.
The purpose of the Option is to allow the developer to go to your County and obtain permitting for wind energy development and zoning changes. Just because you have an Option does not mean development will occur on your land. The wind company will never guarantee you development and may always terminate the Option or Lease.
If you have a parcel that is smaller than 1/2 a section (320 acres), options are entirely negotiable. I often encourage landowners to avoid signing options where possible and go straight into a lease with annual payments. This guarantees you more money while the developer investigates the project.
The LeaseThe standard term for a wind energy lease in California ranges from 30 to 34 1/2 years. This is because most funding for wind projects is secured by 30 year financing and the maximum lease period in California is 35 years. The term of the lease is generally not negotiable so don't waste your time trying to change it.
Terms to negotiate out of the lease include any purchase options, easements for purposes other than wind energy development (such as solar or other purposes), mineral rights, permanent easements, and easements for other parcels not listed in the lease that you own or have an interest in.
You should also request a remediation bond provision be inserted in any contract if one does not exist. This provides bond money to remediate the project (take down the wind turbine) in 34 years. You can also sometimes also negotiate to claim any abandoned property after a certain period. The salvage value of these items is high.
How much can I get for a lease?This varies by company, county, and project area. Many leases offer initial payments based upon acreage that are paid annually during the development stage. Once you have a turbine on your property, you are generally offered a percentage of the gross profit from energy sold as a result of that turbine. That percentage in California is generally 4-7% depending on the company and project area. You will also be offered an annual minimum rent that is guaranteed if you have a turbine and it is not producing power for sale once the project has begun. This varies based upon how many turbines you might be expected to get on your property.
Remember, the first offer is the worst. Many developers low ball landowners on the first offer. The financial terms are negotiable and often end up being as much as twice the initial offer. Speak with your neighbors or an experienced wind lease negotiator to see what the going rates are in your area. Do your homework to get the best deal.
What if I live on the property they want to lease?If you live on the property the wind developer is interested in and intend to stay there, do not sign a lease and be prepared to live in a wind park. The setbacks required by most counties in California are inadequate so you will inevitably end up moving. If the wind company is interested in your parcel where you reside, contact an attorney and negotiate to sell or lease for enough money to move you and your family to a new residence away from the wind farm. There is a good deal of information available online about the problems faced when living near a wind farm. Again, do your homework.
Most Developers will reimburse your legal expensesMost developers will actually agree to reimburse reasonable attorney fees you incur in having your lease reviewed and negotiated. By reasonable I mean generally less than $1500 in fees.
You should always check with the developer or land agent you are dealing with and confirm their policy in writing prior to retaining an attorney. You should also hire an experienced attorney who is well-versed in wind leases and negotiations. If an attorney cannot tell you who the major developers in your area are and cannot describe some of the things list in this article, be very cautious.
Confidentiality and group negotiationWind lease terms are always confidential. As such, no one should be able to tell you what they are getting. Still, many neighbors talk over fences. If the wind companies are contacting you, you can be sure they are contacting your neighbors. Nothing is the original offer is confidential because it is often blindly sent and you have not agreed to it. I often encourage neighbors to talk and work together. This ensures everyone is on the same page and no one feels they are getting less than the others.
One way to avoid this is to request a provision that your lease be changed to match the best rate offered in the project you are in. This is generally considered a "most favored nation" type of clause and benefits everyone in the project.
Holding out for more moneyDepending on the size of your property and location, holding out is a risky game. If you think your parcel is crucial to a project, it most likely is not unless you own significant acreage (at least 120 or more acres). Even then you can be worked around. Most wind developers will label landowners with outrageous requests as unworkable and will find a way to leave you out altogether. Once you are out of the project, it is difficult to get back in and you may end up owning worthless land in the middle of a wind farm and being the only person left empty-handed.
Unless your entire neighborhood is holding out together, or you intend to oppose the entire project, it is not advisable to do this. I have heard from many a landowner who played games with a developer and tried to get back in too late.
Do your homeworkLast of all, do your homework. Find out about the company, ask around locally, use the internet (you found this, after all). Do not be afraid to ask questions. Make sure the person contacting you works for the company working in your area. Some companies go around trying to sign leases early in the development stages with no intention of developing. They sign leases or options with landowners and then sell them to the entity truly planning to develop your area.
Check with your County planning department to see what is going on. Your local public utility usually knows too. Get involved. This is a 30+ year commitment and you want to do it right the first time.