How can you structure a lease agreement for a renewable energy project?

1 Types of leases

When it comes to leasing, you have several options to choose from. A fixed rent lease will provide you with a predetermined amount of money per year or per acre for the duration of the lease, though it does not reflect the performance or profitability of the project. Alternatively, you could opt for a percentage rent lease, which gives you a percentage of the gross or net revenue generated by the project. This requires more transparency and verification from the developer or operator. A hybrid lease is also an option, combining fixed and percentage rent, such as a minimum guaranteed amount plus a variable component. This balances the advantages and disadvantages of both types of leases, but also adds complexity and negotiation costs.

2 Lease term and extension

The lease term is the period of time that the lease is valid for. It usually matches the expected lifespan of the project, which can range from 15 to 25 years for most renewable energy technologies. However, you should also consider the possibility of extending the lease term, in case the project is upgraded, repowered, or decommissioned later than expected. You should negotiate the terms and conditions for any extension, such as the rent adjustment, the notice period, and the consent requirement, in advance, to avoid disputes and uncertainties in the future.

3 Land use and access

The lease agreement should specify how much land is leased, and how it can be used by the developer or operator. You should make sure that the lease area is clearly defined and surveyed, and that it covers all the necessary facilities and infrastructure for the project, such as the turbines, the panels, the cables, the roads, and the substations. You should also agree on how the developer or operator can access the lease area, and whether they need to obtain any permits or approvals from you or other authorities. You should also clarify whether you can use the land for other purposes, such as farming, grazing, or hunting, as long as they do not interfere with the project.

4 Maintenance and liability

The lease agreement should also state who is responsible for maintaining and repairing the project equipment and infrastructure, and who is liable for any damages or injuries caused by them. Typically, the developer or operator is responsible for maintaining and repairing the project facilities, and for carrying adequate insurance to cover any potential liabilities. However, you should also ensure that you are not held liable for any negligence or misconduct by the developer or operator, or for any environmental or regulatory compliance issues that may arise from the project. You should also require the developer or operator to restore the land to its original condition, or as close as possible, when the lease ends or the project is decommissioned.

5 Termination and dispute resolution

The lease agreement should also include provisions for terminating the lease, either by mutual consent, or by default, or by cause. You should understand the grounds and procedures for terminating the lease, and the consequences and remedies for doing so. For example, you should know what happens if the developer or operator fails to pay the rent, or breaches any of the lease terms, or goes bankrupt, or sells or transfers the project to another party. You should also know what happens if you want to terminate the lease for personal or financial reasons, or if you face any legal or regulatory challenges that affect the lease. Additionally, you should agree on how to resolve any disputes that may arise from the lease, such as through mediation, arbitration, or litigation, and what laws and jurisdictions apply to them.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?