Farming is a vital industry, but it is also notoriously unpredictable. In some circumstances, owners of farmland may consider alternative uses for their land, especially if the profit potential is much greater than that from farming.
Over the past few years, solar farms have become much more attractive as income sources. Halderman Real Estate and Farm Management has negotiated solar leases for many farms in Indiana and the surrounding states. We had the opportunity to discuss the basics of solar farms with Halderman's John Miner, who has been with the company for over 50 years.
Hi John, can you give us an overview of a solar lease?
A solar lease can come into play at any time and consists of three stages. There is the development stage, the construction stage and the operations period.
A typical lease term is for 15 to 25 years for the initial term with two 10-year renewal options. The rent is specified on a per-acre basis, and as with any commercial lease, there are terms that relate to obligations of both parties. One of the most important covenants relates to the obligations on the part of the tenant to restore the land.
The development stage can last between two and five years, during which the lessee performs its site feasibility and due diligence. Some of the factors studied include site drainage, zoning and determining who the buyer/consumer is for the power generated by the solar farm. During the development period, the landowner receives a per-acre payment, but not as much as during the operations period.
During the construction period, the essential infrastructure and aboveground improvements are completed. The elements of a solar farm include the solar panels, the structures supporting the panels, inverters, cabling infrastructure, fencing and the roadways that provide access to maintain the system. Keep in mind these tend to be very large projects generating multiple megawatts of power.
What are some of the physical elements of a solar farm?
The panels are supported by steel poles that are placed between 4 and 6 feet below ground and extend 10 to 15 feet aboveground. Each unit is about 4 to 5 feet wide. For a typical installation, the entire parcel of land will be covered except for strips in the middle to allow for service access.
What are some of the benefits for a landowner with a solar farm?
Mainly it's the amount of rent. Most solar leases provide a landowner with about three times the rent they could expect from farming the land. During the development period, the owner is still entitled to grow crops.
And on the flip side, what are the negatives?
One of the negative impacts is how a solar development affects drainage. If there are roads included, the impact can be even more severe. Bear in mind that the tenant is required to restore the land and remove the improvements. And with the typical lease term with renewals extending 30 to 40 years into the future, the problem is not an immediate one.
If someone is interested in a solar farm, what is the best way to start?
Halderman can assist with all aspects including negotiating the lease and helping to review a site plan. Seeing a site plan is crucial because it shows the proportion of the land that will be used for solar, including setbacks, drainage and site circulation.
This in turn informs how much income potential there is for the site. Halderman advises that parties entering into a solar lease secure proper legal advice and review. It is also important to screen the tenant for their level of experience and financial stability. Some lessees sublet to operators and others are the user, so this is a good initial screen as well.
With Halderman Real Estate and Farm Management's experience in solar leases, we can help identify a reliable and financially strong solar partner to provide steady income for your land. Please call us to discuss your needs with solar or any farm management needs.