Updated: Jul 9, 2020
By Ashley Ellixson and Paul Goeringer
This post should not be construed as legal advice
A few areas in Maryland are debating whether to allow development of wind turbines (aka windmills). Putting a wind turbine on a property will open up new revenue sources for a landowner and potentially impact (negatively or positively) neighboring landowners. At the same time, a landowner who wants to see these new revenues will have to sign a very lengthy “wind energy agreement” or “wind energy lease.” This agreement or lease, depending on the name used, will dictate the rights and duties of the wind company and the landowner and could potentially impact the land for years to come (possibly over multiple generations). It’s important that, before signing on the dotted line, landowners carefully review these documents with an attorney who has experience handling these agreements to understand the terms, how the landowner will get paid, and how the agreement will impact future decisions involving the land.
Before we start, it is good to know that a wind energy agreement is really three agreements rolled up into one document. The first agreement is the option period which typically runs 3 to 5 years (but some could run for 10 years) during which the company will conduct tests to determine feasibility of the property for the wind project. The landowner could potentially request rent payment during this period to be paid annually while tests are being conducted.
If property is determined useful for wind energy development, then the landowner would move into the easement period or second agreement. This is when turbines go up and the other necessary infrastructure is built. Again, the landowner could request rental payments here to potentially speed up development. Once the turbines are in place and the infrastructure exists, then we move into the third agreement, the lease period. With the lease period, energy production will start and you will potentially see payment for production of electricity on property.
There are a number of issues to consider before signing a wind energy agreement.
1. Contacting an Experienced Attorney
Before we even provide a general overview of typical terms and what you should be aware of in a wind energy agreement, we want to remind you of the complexities of these agreements. These documents can be 30 plus pages long and full of legalese. These agreements will run for years and you want to make sure you understand everything from the start. Payment terms can also be highly complex. This means you need to talk with an attorney who has experience handling wind energy agreements.
Notice that we said experience. This means the local attorney who handled your will or trust may not have the experience necessary to handle these agreements. In Maryland, this could be an issue because we have such a limited history with wind energy development. You may need to look for an attorney in Western Maryland (where other projects have gone in) or in Iowa, Kansas, Oklahoma, or Texas which all have a longer history of wind energy development.
2. Will the Agreement Limit Current or Future Uses?
When reviewing the agreement, consider how the language could impact current and future uses on the leased property. Is the landowner giving up rights to build structures that could impact airflow? Is the landowner giving up the ability to hunt or use the property for other recreational uses? Does the agreement contain language allowing the landowner to continue to use the land for agricultural and recreational purposes? Are you giving up the right to participate in government conservation programs?
Another consideration is how the agreement may impact future plans for the property. The potential revenues from the project may be good initially, but if you want to develop the property for another purpose 5 years, 10 years, or 20 years down the road, does the agreement limit that ability?
3. How Long Will This Thing Last?
Remember the agreement is three agreements rolled into one. Pay careful attention to the time periods for each. Generally, if all goes well, then the agreement could run between 20 to 40 years (or longer depending on the company). One issue to stay aware of when looking at the term of the lease is who has the power in renewing the contract. Typically it is solely the developers. Another issue may arise in estate planning since the leases can run 20 plus years. You may want to have successors to the property involved in consideration of the lease due to this concern.
4. Pay Attention to Your Obligations Under the Agreement
Pay careful attention to language that will affect what you can do with the property. Does the agreement limit the ability to build structures on the property that could impact wind flow? Are you (as the landowner) required to indemnify the developer for any reason? Indemnification is where you agree to pay future costs of any losses, damages, or injuries from a specified event. Pay attention to your obligations and work with an attorney to negotiate language which may be fairer to the landowner.
5. How Are You Paid Under the Agreement?
Pay attention to language that discusses how you will be paid. Will you be paid rental payments during the option and easement periods? Will you be paid for land utilized by the project and how is that calculated? How do you know if that amount accurately reflects the value of the land taken? How will payments during the lease period be calculated? Will they be based on electricity produced from turbines on the property?
6. All Good Things Must Come to An End
At some point, the wind turbines will no longer be useful, considering their typical useful life is 20 years. Does the lease contain language requiring the company to remove the turbine, power lines, concrete, and other improvements made to the property? Will the company return the land to its original condition? Decommissioning language may not be found in all agreements so pay careful attention to whether this is included in your agreements, since the cost of removal could fall on you as the landowner.
You may have figured out why we put the need to find an attorney experienced in working with wind energy agreements first. These agreements are not simple; they are very complex and highly specialized contracts that you will want help with. Pay attention carefully to the language and how it will impact you, your land, and future generations.
If you would like more information on wind energy agreements, resources are available. Oklahoma Cooperative Extension has available on their website, Wind Energy Leasing Handbook, by Shannon Ferrell, Rusty Rumley, Steve Sandler, and Charles Cunningham. Although the book is geared towards an Oklahoma audience, Maryland has many of the same issues.. Finally, the Farmer’s Legal Action Group has another resource, Negotiating Wind Energy Property Agreements by Jessica A. Shoemaker.