Leasing farmland for wind farm development requires careful review
Over the past few years a large number of acres of Michigan farmland have been leased under long term energy development agreements for wind farm development.
July 16, 2013 - Author: Dennis Stein, Michigan State University Extension
Leasing farmland for an energy development continues to impact farmland owners across Michigan. A large part of Michigan’s Thumb has been leased over the past few years for the potential energy-wind farm development. This process can be an opportunity for landowners to add to their family income with the upfront signing bonuses, but care should be taken in the leasing process. Too many landowners have signed long-term lease agreements without understanding the terms of the lease/contract agreement and how it can impact them. Michigan’s Renewable Energy Standards has created a need for utility companies in the state to provide a source of renewable energy over the next few years. Wind energy is one of the most economically viable options for utilities to purchase to meet this mandate. Several wind farms have been established in the state with farmland owners who may not have been part of the original development blocks and are now being asked to lease their farmland. This process of filling in gaps for phase two and three expansion projects generates continued leasing of more farmland. From time to time the number of outstate firms that are taking an active interest in the state can create areas of leasing activity.
If you are one of the farm landowners that are being approached by a person representing a wind farm developer, here are a couple points to keep in mind:
- The process of leasing is a negotiation which means you need to protect your personal interest from being taken advantage of by the developer. The company representative may refer to the agreement as a “Standard Lease Agreement,” which only refers to the document being the standard that that firm is offering at the time and what they would like you to sign, not that lease is the same for every company.
- You need to be sure that you are getting reasonable compensation for the rights that you are giving to the developer. Make sure you know the compensation packages that have been offered in the state to other landowners. If you are the last land parcel that is needed to complete a project you may have some leverage to negotiate better terms for your agreement. You need to be compensated on all acres that are under the lease, compensated for roads and power lines located above or below ground, and for each turbine on an annual basis for the life of the lease.
- Make sure your developer will cover legal costs, insurances and property taxes that may be applied to your property as a result of the wind farm development. It is important that payments in the agreement be indexed to follow inflation over time to insure that the payment values remains relevant over the lease lifetime.
- Never sign a lease without having time to read and understand the content of the entire document. Your best option is to get good professional advice from someone who understands wind farm development leases before you sign anything. If the developer tells you not to discuss the lease with others they normally have something to hide.
These comments are just the start of the discussion that needs to take place and consider before leasing you farm land to a wind farm developer. Your local Michigan State University Extension office can provide you information and assistance by linking you landowner informational resources and provide you with a copy of “Guidelines for Landowners Evaluation of Wind Energy Production Contracts”. You will find additional wind information available at this website that may be helpful for you to better understand wind energy and wind farm development. Information is your best defense in insuring that you obtain a good energy development agreement.