Oil and gas leases are common for many landowners. But, as the race in solar energy develops, many solar companies are looking to lease agricultural land for solar projects.
Landowners should consider several key factors when negotiating a solar lease agreement with a solar company. Legal advice should be sought before signing any lease agreement.
“We’re still early in the era of solar energy development in West Texas,” James Decker, Texas attorney, told AgriLife’s Texas Agricultural Law Blog. “Lease rates appear very enticing, particularly in an area of low commodity prices, but landowners should seek advice from straightforward, practical-minded legal counsel to minimize unintended consequences and avoid a deal that’s ‘too good to be true.’”
The sun has never been ruled a surface or a mineral estate by the Texas Supreme Court. But according to Texas Agricultural Law Blog, most legal scholars assume the court would hold that solar rights belong to the surface owner. The surface owner would have the authority to enter into and negotiate solar lease agreements.
Mineral estates are dominant under Texas law, which means the mineral owner has the right to use as much of the surface as is reasonably necessary to produce minerals, without permission or payment to the surface owner. Surface estates do not have the same implications because one surface substance is not dominant over the other.
Another factor to consider is the status of the mineral estates beneath the land being considered for a solar project, author of the blog Tiffany Dowell-Lashmet said. Because most oil and gas companies build drill pads, prepare roads, install pipeline and drill injection wells, this can be a conflict with solar lessees looking to put in a solar project on the same land. If a lease agreement is already in place for the mineral estate, the solar company will likely carefully analyze the status of the mineral estate.
Solar lease agreements typically last 20-30 years, and landowners should consider that the lease will tie up the land for a significant amount of time, Dowell-Lashmet noted.
A solar lease has two phases—development and operations. The solar company will conduct environmental studies, analyze transmission capabilities and gather other information to see if the project will work during the development phase. The operations phase is when the project actually begins producing and selling energy.
Solar companies generally have annual payments in terms of dollars per acre. Landowners should note the price offered during the development phase is lower than during the operations phase and should want the development phase to be as short as possible in the lease agreement.
Agricultural landowners should be cautious when considering solar leases because of the potential negative impacts it could have on their operation, Dowell-Lashmet said. Solar leases often require numerous continuously placed panels that would prevent other uses of the land. Ranchers may lose grazing land for cattle or acres of farmland.
Solar leases also may include a requirement that the landowner does not construct anything that could impact the sunlight flowing to the solar project.
Another factor to consider is the potential loss of the special tax use valuation eligibility when figuring property taxes. The special tax use valuation allows the property taxes to be calculated based on a percentage of its productive capacity versus the fair market value of the land. If a solar lease agreement is signed, a landowner may lose their ability to qualify for this tax break.
Dowell-Lashmet recommends landowners visit with their local appraisal district to see how a solar project would impact special use valuation.
Experts agree it is vital to seek legal advice to avoid these issues and protect landowners’ rights.
Thank you so very much for this article!!! As a landowner, we do not know what to consider and this was very helpful.
Thanks for the warning. I’m a retired petroleum landman and have read hundreds of oil and gas leases and a large number of wind energy contracts. The wind energy contracts don’t even compare with an oil and gas lease as far as limitations concerning terms, bonuses, royalty, easements etc. I haven’t examined a solar lease yet but I do know that the panels are placed so close together that they vertually eliminate the possibility of farming or grazing cattle.
Thanks again,
Thank you so much for this information. We have cattle and hay on our ranch, so this would have to be very profitable before we would ever consider something like this, plus we love our cows. Thank you again for this information.
While likely more costly for the company, depending on the negotiated rate and panel setup, it seems very possible that the panels could be raised so livestock can actually graze around and get shade under the panel setups. Of course, you’d have to consider liabilities with livestock in terms of solar maintenance crews entering your land to check and service the panels and other gear. Just something to think about.
We been offered a lease for $300/ac for the long term, Does anyone have a figure for us to compare this to?
What is ave land lease rates in west central Texas for solar projects
What’s the land lease rate in California for solar farm project?
just been given a contract for a 15 yr./ $550 acre lease payment here in Ms. ……..Just finished harvest on the 500 acres of cotton…….going to spend some time looking over …..that was their first offer…..??? what would our
land taxes do?? we could never net that at these comm. prices…..$0.75/ # for cotton and 4 dollar corn…..
any comments……the company is an A rated that been around for a while……the little I checked them out….nextera entergy…..
Yes let’s use all the land up for this crap instead of raising food . It makes me sick. I guess everyone would rather worship the money god instead of using common sense. If you think this will not cause damage not only to the land but to water , like run off and wells then maybe you should get the money sign out of your eyes and do some serious thinking on this. Smh.
Does anyone have going land lease rates for NE Texas per acre?