How does a wind farm agreement work?
A wind farm agreement provides a wind farm operator with rights to exclusive possession over land for wind farm turbines and other equipment. These agreements allow for the construction, maintenance and operation of wind farm turbines and other equipment on the land. In return, the landowner will receive a rental payment from the wind farm operator.
A wind farm agreement may consist of a number of documents, including:
- an access licence granting the wind farm operator with the right to access the land to carry out due diligence and works, such as site investigations and assessments and to determine the feasibility of a wind farm on the land;
- an option agreement where the wind farm operator has the option to lease the land and/or to create easements over the whole or any part of the land; and
- a lease granting rights to exclusive possession of the land for the wind farm turbines and other equipment on the land for a fixed period of time with easements in place over the land, such as an easement for an access road to the wind farm infrastructure or an easement for underground cables.
A landowner needs to be aware that there is no certainty that the wind farm operator will proceed to a lease e.g. if the wind farm operator is not satisfied with its due diligence investigations regarding the land it may decide to terminate the preliminary access licence and withdraw from the land.
How does wind farm affect land?
While the landowner will continue to be the owner of the land, there may be restrictions on how a landowner may use it once the wind farm agreement is entered into. These restrictions are important to the wind farm operator as the landowner’s use of the land may interfere with the flow of air to the wind turbine or affect any transmission cables. However, these restrictions could result in a potential loss of income to the landowner, such as land where the land was previously used for farming purposes.
Where a lease or an easement is in place over the land, the wind farm operator will have exclusive right and access to the land, including for the purpose of:
- equipment to measure wind speeds;
- construction and maintenance of wind turbines; and
- access roads to the wind turbines.
The wind farm operator may seek to impose an exclusivity restriction on a landowner so that it is prohibited from communicating or dealing with other wind farm operators.
A landowner may impose limits on the wind farm operator regarding the amount of land that is available for the wind farm operator’s use or the type of activities that the wind farm operator cannot prohibit on the part of the landowner. This might include, the exclusion of a portion of a site (e.g. a dwelling, shed and so on) from the land being licensed or leased. Another example might be that the landowner is entitled to continue to use the land for farming purposes. These limits should be negotiated and agreed with the wind farm operator upfront before the agreement is entered into.
A landowner should consider any costs increases relating to insurance or holding costs associated with the wind farm, such as rates (including land tax) or the imposition of separately assessed rates over the any part of the land where the wind farm is operated. A landowner should seek reimbursement of these rates and costs from the wind farm operator as part of the lease.
Will the wind farm equipment be removed?
At the end of a wind farm agreement, the wind farm operator is generally required to decommission and remove its equipment, infrastructure and any access roads from the land and make good any resulting damage to the land.
A risk to a landowner is that the wind farm operator may default or be wound up such that it does not have the financial ability to meet its legal obligations, resulting in the landowner being left with a substantial amount of wind farm equipment infrastructure on the land. There may be a significant cost to a landowner in the removal of this equipment and infrastructure.
The wind farm operator might seek to register its lease or register a caveat over the land. By registering its interest in the land, the wind farm operator’s rights and interest in the land will be noted on the Certificate of Title to the land which will provide certain legal protection to the wind farm operator. Generally, if a landowner transfers its interest in the land, the land will be subject to the interest of the wind farm operator and the new owner will be required to enter into a separate agreement with the wind farm operator, binding the new owner to the terms of the wind farm agreement.
A landowner should consider the requirements of its bank and mortgage if the land is used as security for a loan. It may be necessary for a landowner to obtain the approval from its bank as the wind farm agreement may affect the value of the bank’s security. The wind farm operator may also seek to require the provision of mortgagee consent as a condition of the lease.
The wind farm operator should cover a landowner’s legal costs upfront as it will incur legal costs in reviewing and negotiating the proposed terms. Typically, the wind farm operator will agree to cover a landowner’s reasonable legal costs up to an agreed amount. A landowner might also seek for the wind farm operator to cover the landowner’s costs for accounting advice on the wind farm agreement.
Do I need professional advice?
It is important for landowners to review and understand the terms of a wind farm agreement and what potential impact it may have on them. Wind farm leases are often long-term commitments (generally up to 25 or 30 years) and complex transactions covering a range of matters. We encourage landowners to obtain independent professional advice from suitably qualified and experienced advisers, including lawyers and accountants.
Our Property Team has extensive experience in advising and assisting landowners across South Australia on all forms of renewable energy and telecommunications agreements. For more information, email [email protected] or give us a call on 8414 3400.