Wind energy developers have been looking at Palo Alto County since last year and presenting leasing contracts to local landowners. With many questions regarding these contracts, the Iowa State University Extension and Outreach in Emmetsburg, held an informational meeting regarding legal issues to consider before signing anything on Tuesday, March 15 at the V.F.W. in Emmetsburg.
Forty-eight landowners were on hand to listen to Roger McEowen from Ankeny explain what landowners need to considered before signing any contracts. Roger is a Kansas Farm Bureau Professor of Agricultural Law and Taxation, Washburn University School of Law in Topeka, KS and Tax Director, Agribusiness and Cooperatives, Midwest Region, CliffLarsonAllen of West Des Moines.
“Three things that are very important with regards to any contract is NEVER sign anything without reading it and understanding it, all contracts need to be negotiated to create a more equitable agreement between the parties involved and ALWAYS have a lawyer review the contract first,” McEowen began.
When talk of about the potential for a wind turbine on their property, dollar signs are on of the first things that come to mind, but, before rushing into anything, there are several legal issues that must be considered.
“Initial contracts are always written in favor of the one presenting the contract for consideration, meaning it is one sided,” McEowen said. “Therefore, it is extremely important to balance any compensation you are receiving so it is fair for what you are giving up. You want to look at any potential areas that could leave you open for liability such as environmental concerns, issues that could be raised by neighbors, zoning requirements (set backs), land use restrictions and governmental farm program eligibility.”
Landowner responsibility during construction is generally vaguely stated in the contract. An important clause that needs to be stated in any contract is that the landowner is not liable for the negligence of others in respect to wind turbine construction, operation and decommissioning. Make sure that you cover as many potential liabilities that could arise. Some potential liability concerns that are associated with wind energy development are: damages to adjacent property, aesthetic damage, damage/injury from ice throws, stray voltage, interference with electromagnetic fields, fire due to a malfunction or lightning strike, interference with tv and radio signals, death of protected birds or bats and adverse health impacts.
“If dead birds and bats that are protected by state and federal agencies are discovered around a turbine, the landowner could possibly be held criminally responsible for the deaths,” McEowen said. “It is important to negotiate that the landowner cannot be held responsible or if he is, the wind company will compensate him for any monetary judgment assigned.”
McEowen went on to explain that there are two general parts to a wind energy contract, the part that involves the prospecting and development of the property and the operation of the turbine. He made it clear that a landowner will want two separate contracts and not one.
“Many of the wind energy contracts that I have seen contain the clause “with the option to extend,” you DO NOT want this in the contract. The company could continue to extend for as long as they wish,” McEowen explained. “The best plan for the landowner is to negotiate two separate contracts that are more beneficially equal to the landowner and not one sided in favor of the wind energy company.”
In the first part of the contract, look for the time frame the developer needs to determine whether the land is suitable for a wind turbine and the layout for the turbine. This section will include an option after the time frame to extend the contract. Make sure this is removed. McEowen also pointed out that five years is a sufficient amount of time to make construction decisions and these decisions can be made within two years. Tying up land for any longer is not necessary. Negotiated into the contract should be a release provision stating that after the first three years the operator releases the landowner from the exclusivity provision if a similar or better offer comes along and also releases land that will not be used.
Also contained in the development section of a contract is the amount of land subject to the agreement. The landowner should always narrow the legal description of the land in the agreement. This gives you something to negotiate for more compensation.
In the second part of a wind energy contract, a longer time frame is negotiated for the operation of the turbine. A timeframe for this contract would be 20-40 years and may also include an option to extend clause. A landowner will want this clause removed, a provision included to release any lands not used (if possible) and a CPI inflation clause that will increase payments over a specific time and for a specific amount or percentage.
McEowen continued the discussion with payment questions that landowners need to consider and ask before signing any contract:
Is the landowner entitled to any or all energy credits related to the project?
Is there an offer of an up-front lump sum payment and is the payment representative of the fair amount of rights involved?
What are the tax consequences of wind energy payments that will be paid under the agreement?
Are payments based on revenues generated by the wind turbines?
Can the landowner get information as to how the owner’s revenue will be calculated?
If the wind energy company puts additional equipment on the towers and collects compensation, is the landowner entitled to some of the additional compensation?
Does the agreement guarantee that a set number of wind turbines will be constructed on the land by a specific date and, if not, is the developer willing to guarantee a minimum amount of payments?
It is extremely important that the landowner understands the economics of how he will get paid and to make sure there is an inflation adjustment clause.
McEowen pointed out that there are many cost questions to considered when entering into a wind energy agreement:
Who is responsible for compliance with future governmental regulations?
Consider future potential of farm expansion.
It is in the landowner’s best interest to place a limitation on the construction of the roads and lanes making sure only the shortest, most direct route is used.
If property taxes increase due to development, who is responsible for the additional taxes?
Will the wind energy company pay all legal costs and resulting judgments filed against the landowner that are tied to a wind turbine?
Who bears the cost of decommissioning?
McEowen went on to discuss what is needed to make sure the agreement is equitably balanced and fair to the landowner. Many key provisions are need to ensure that the landowner is benefited by the contract and is not held responsible for liabilities created by the developer or the wind energy company.
“Couple of important items to point out is that a landowner should never sign a contract that contains a confidentiality agreement concerning the terms and conditions of the agreement and to realize that a common problem with wind energy agreements is that once they are proposed, the company waiting to execute the agreement tends to refuse to negotiate changes and always find out first who the developer intends to assign the turbine to once finished,” McEowen stres-sed. “Being unwilling to negotiate or come forward with the information is a deal breaker for me and I would never sign a contract.”