In this podcast, Special Counsel Clarrisa Moore explores factors landholders need to consider about renewable energy projects.
Transcript
Dan: Wind and solar farm proponents are increasingly looking to expand their projects and investments throughout Queensland, particularly the central Queensland area. Consequently, there has been an increase in renewable energy project developers contacting rural property owners, and requesting agreements. To talk about the legal implications of all this, I’m with Clarrisa Moore, special counsel at South Geldard Lawyers. Clarrisa, do landholders have to negotiate with the renewable energy developers?
Clarrisa: The short answer is no. All negotiations are on a consensual basis. Unlike property access for mining, there is no specific legislation which requires landholders to negotiate agreements with the renewable energy developers. Having said that, from a practical point of view, a landowner may feel as though they have to at least consider negotiating with these companies. One example where that might happen is where there’s a large project being proposed. So you might have a landowner whose property is in the middle of a proposed project, and there are other surrounding landowners who have decided to enter into agreements with the renewable energy developer.
The middle landowner may feel as though they are going to be affected by the project anyway, as their property might end up being surrounded by the project. Consider it as if it was your land, imagine you’re living on a parcel of land and you find out that all of your neighbours are going to sign agreements permitting a wind farm, for example, to be built on their properties. Your property is being surrounded by wind turbines potentially down the track. In that situation, you might feel as though you are going to be negatively affected by the project, regardless of whether you enter an agreement or not. So in that case, you then have a choice as to whether or not you would like to proceed. There are a few options, and we usually discuss those with our clients, and to work out where they want to go with negotiations.
Dan: Clarrisa, from the outside looking in, it seems that renewable energy developers are rushed to have land-owners sign agreements. Why is that?
Clarrisa: Developers are competing with each other to secure land access rights and project approvals as soon as possible because there’s only so much of their capacity in the electricity grid. So some developers might look to develop their own projects and then construct the project down the track. But there will also be a number of developers who are looking to negotiate agreements with landowners and then sell the project to a third party. In that case, they’re looking to secure the property agreements and then secure an investor or sell the business to a third party for profit. In other cases, there might be strategic reasons why a developer would sign a long term agreement with a landowner. That is to block competitors from getting their approvals in place. What landowners should really be aware of is that simply because a renewable energy signs up an agreement with a landowner, that doesn’t mean that the project will necessarily be developed later on.
Dan: What type of agreements are usually proposed?
Clarrisa: There can be a variety of different agreements proposed by the developers. However, often the agreements are one of three different types, a licence agreement. A licence agreement allows a renewable energy developer to enter private land and undertake feasibility studies. The second type is an exclusivity agreement. That type of agreement includes a licence for access for those feasibility studies where they go in and investigate whether or not the project is feasible. But it also usually includes clauses which require the landowner to deal exclusively with that particular developer.
If a landowner signs this type of agreement, then the period for the agreement, say it was two years or four years, during that period, the landowner agrees to only deal with that one developer and not negotiate with other potential developers. The third type is an option agreement. An option agreement is an agreement where the landowner grants the renewable energy developer an option to take up certain rights relating to the property. Some examples might be an option for a lease or an option for a purchase. If it’s an option for a lease, say for four years, that agreement would allow the developer four years to decide whether or not they would like to lease the property and whether or not they would like to later construct the wind farm or the solar farm. In exchange for those rights, the landowner usually receives what’s called an option fee.
That option fee is negotiated between the landowner and the developer during the initial negotiation. The other example was the option agreement for a purchase. So under that type of option agreement, the developer is granted an option to purchase the property at an agreed price. During that term of that option agreement, the developer can decide whether or not they’re going to purchase the property from the landowner later on and in exchange for that, the landowner receives an option fee also. There can be other types of agreements, but the ones that I’ve just mentioned are the more common types of agreements.
Dan: Clarrisa, are there some other matters that perhaps a landowner needs to be across, if they are to be approached by a renewable energy developer?
Clarrisa: There are numerous things that should need to be considered. We don’t really have enough time to go through them all today. But the first thing a landowner should consider is obtaining professional advice. Landowners should consider speaking to their lawyer, accountant or potentially their financial advisors very early on. Later on, valuations might be necessary, and we do often talk to clients about obtaining valuation, depending on what the proposal is from the developer. In the transactions that I’ve been involved in, the developers usually agree to contribute to landowner cost when they’re asked. Some other things that really are the big ticket items are the length or term of the agreement being proposed.
Until such time as the decision is made as to whether or not the developer will proceed with the project, there’s really no guarantee that it will. The option period is usually a number of years, so during that period of time, the developer has the opportunity to decide whether or not they’ll proceed with the project and take up the later agreement, say, a lease or a purchase. Another thing that landowners should consider is the option fee being offered. That’s a pretty obvious one. What I find, though, is the option fee usually the first option fee that’s proposed by the developer is usually their first offer, and landowners can usually negotiate much better financial terms. So just because it’s being offered doesn’t mean that that’s what’s going to be agreed on with the option fee.
Later on, it’s usually the option fee is the first part of the agreement, and then once the developer decides whether or not they’re going ahead with the project. There’s another component, which is either the rent for the lease or the purchase price. One particular thing is the price that’s going to be agreed. So the rent or the purchase price is usually agreed at the start. So that could be a couple of years before the developer decides they’re going to go ahead with the project and rural land values have experienced a significant increase in recent times. So the agreements, which are drafted at the start, need to take into consideration that there is a potential significant rise in values over the next few years. Another thing that landowners should consider is whether they would prefer to lease or sell their property down the track if the project proceeds.This is particularly relevant where a landowner lives on the property.
They need to consider whether they wish to continue living on the property once the project is developed and what impact this might have on them. If they don’t want to continue living there, they need to consider whether they would prefer to lease and then potentially move somewhere else, or whether they would just prefer to sell and make a fresh start. Another thing would be the area of land covered by the agreement. What I’ve seen is that developers usually prepare their documents on the basis that it’s to cover all of the property. So they’ve got rights over all of the property. What I found, though, is that often not the whole property is required and only part of it is actually required. So we look to reduce the area covered by the agreement, and that’s in the best interest of the landowner, usually. Another thing would be, what does the agreement actually permit the developer to do? This is really important. Most landowners, they’re not experienced in negotiating lengthy and complex documents. For this reason, it is important that they seek appropriate advice from someone that has that experience.
These types of agreements can be complex, and often landowners do not realise exactly what’s in the agreements until they obtain that appropriate advice. The financial terms are very important, of course, they are. But the other terms of the agreement are very important as well. These are long term agreements, so the terms are very important. It impacts the ongoing use of the property for potentially 30, 60 years later, depending on the terms of the agreement. But sometimes leases are 30 years plus 30 years, so it’s a long time. So it’s important that they get the appropriate legal advice and make sure that the terms reflect what they think the terms state. I have had landowners approach me where they signed agreements without getting advice in the first instance.
So there might be an initial agreement with the developer, and then the landowners have got advice from me later on, and what they found is that they didn’t really understand what they were signing up to because they signed the agreement based on what they thought the agreement said or what the developers told them it said and that’s why advice is really important. On that point also, some of those initial agreements permit the developer to submit applications relating to the property to government bodies such as local councils. One example might be a development approval application or what’s called a material change of use application. A material change of use application might change the use of the property from rural residential land to some other use, such as a wind farm. This can have a significant ongoing impact on the land. It might affect your rates, your levies, your land tax, your insurance.
That’s why it’s really important that landowners seek advice at the start so they can make sure that the agreements have appropriate clauses in there to cover them for all of these potential increases. You don’t want to be stuck with increased costs, but not being remunerated for it or the developer being responsible for those costs. Other things might be access conditions, weed clauses, causes relating to gates, roads, wet weather access, bio security requirements. Make good provisions are really important as well and then there’s always the other legal clauses, which landowners need to speak to their lawyers about clauses like caveats, foreign investment requirements, maintenance, repair, provisions, all of those, they all need to be considered and these documents are quite lengthy and they cover, but they usually address most of these issues. But you need to speak to somebody to get advice to make sure they cover your interests as a landowner.
Dan: Clarrisa, is it only the wind turbines or the solar panels which will actually impact the landowner’s property?
Clarrisa: No, and that’s why it’s important that landowners obtain an overview of the project and ask questions about what other infrastructure will be required. Often other infrastructure is required, such as new roads, substations, electricity lines and the like. The impact of this additional infrastructure needs to be considered by landowners from the early stage, particularly when the key terms of the agreement are being negotiated, such as compensation, because they might not realise that there’s going to be other areas that are going to be impacted and there might be other legal documents that are required, such as easements.
Dan: Are there any other parties to be considered in all this?
Clarrisa: Yes, there is. Landowners, financiers, particularly where there’s a mortgage registered on the property. Usually the developers do require the bank or the landowner’s financier to sign some documents, so that’s important. Also the landowners insurer, and also any other person or entity which might have rights to the property. So a landowner might have existing share farming agreements or agreements with mining companies or any other third party. So the interaction between all of these different parties needs to be considered, and it’s important that the agreements which are negotiated adequately and appropriately address those third party interests to make sure that landowners are protected to the best extent possible. One other one, though, it’s not so much a legal matter, but more of a social consideration, is neighbours. Often people have great relations with their neighbours, but the social side of it is that sometimes there can be disagreements with between neighbours if the neighbour finds out that there’s going to be a wind farm or a solar farm close to their property. So it is something that needs to be considered, even though it’s not a strictly legal matter.
Dan: So in closing, Clarrisa, what should a landowner actually do if they are approached by a renewable energy developer?
Clarrisa: I know I’ve said it before, that they should seek advice in the early stages. The agreements being proposed can be long term agreements, which find the landowner for lengthy periods. If asked, the renewable energy developers usually contribute to the professional costs. So it’s always in the best interest of the landowner to obtain that advice early on. Also, those initial negotiations between landowners and developers can set the tone for later, more serious negotiations. So it is important that landowners go into those initial negotiations with as much information as possible, and landowners should really keep in mind that even though they’re dealing with a particular contact from the company or the developer at the start of the transaction, it might be that they’re not dealing with that person down the track. So it’s really important that all the terms that the parties understand are agreed, are documented in full in the documents.
Dan: Clarrisa, South Geldard lawyers have got strong expertise in these types of matters. If people have got any questions, they can reach out to you.
Clarrisa: Yeah, of course. I’m here to help.
Dan: Clarrisa, thanks for joining me.
Clarrisa: Thanks for your time.
Thank you for listening. If you have any questions, don’t hesitate calling South Geldard lawyers on 1800 329 448. Thanks.
