The 2019 Maine legislative session lead to the creation of several laws incentivizing the growth of solar energy in Maine. These new laws have created a so-called “land rush” from out-of-state solar developers seeking to obtain interests in land from Maine landowners for potential solar development. Typically, these interests come in the form of a solar lease between the landowner who becomes the landlord and the developer who becomes the tenant. This article discusses typical terms of such a solar lease. It identifies certain areas that may require special attention from a landlord.
Option Period
Most solar leases contain a 1-3 year option period in which the developer can perform tests and other due diligence to determine whether the property is economically viable for a solar facility. The landowner gives the developer the exclusive right to make this determination.
Ultimately, they lease the land from the landowner should the developer so choose. The developer pays a small amount of about $500-$1,000 annually, to the landowner during this period.
Solar Lease Term
If the developer determines the land is fit for a solar facility and can obtain necessary municipal approval, the developer exercises the option in the lease. They lease the property from the landowner. The duration of these leases is approximately 20 years.
This equals the useful life of the solar panels. During the term, the developer pays rent to the landowner annually for each acre of the property occupied by the solar facility.
Solar Lease Property Taxes
A fair lease should properly apportion the taxes on the property in relation to the amount of acreage leased by the developer and the total size of the landowner’s parcel. The lease should also account for an increase in the assessed value of the property based on the existence of the solar facility.
Due to the duration of these leases, it may be possible for the landowner and the developer to seek a tax parcel division of the solar facility from the municipality or local taxing authority. That way, the real estate property tax bill for the solar facility goes directly to the developer.
Decommissioning
At some point, the lease ends. The solar panels must be removed from the property. Other states or localities with solar development have statutory guidelines and local ordinances to account for the removal of the solar panels. Maine and its municipalities have, in large part, not yet adopted such requirements.
Thus, a developer could potentially abandon a solar project, leaving the removal obligations to the landowner. Although solar leases usually state that upon the expiration or termination of the lease the developer removes the panels and restores the property to its original condition. A landowner should require a decommissioning bond or escrow account from the developer to ensure the removal of the solar panels and other equipment at the end of the lease.
Solar leases can be an attractive opportunity for a landowner. The above discussion touches upon a few of the many issues a landowner should explore prior to entering a solar lease. If you are approached with an offer for a solar lease, please contact Rudman Winchell for further assistance.