October 8, 2021
6. Escalating rents As a solar lease can span decades, it`s important to put in place a mechanism to ensure rents keep up with inflation. Many leases include a rent correction provision that increases the annual rent by a certain percentage. If you are not satisfied with the percentage of the rent correction, a landowner may consider being held responsible for either the annual increase in the Consumer Price Index or the increase in power purchase agreements approved by the Michigan Public Utilities Commission (MPSC). 1. The window of opportunity Two factors seem to be driving much of the recent development of solar farms. First, Michigan has strong portfolio standards (RPS) that require distribution companies to increase energy production from renewable sources by up to 40% by 2025. 2. Lease optionOlar land use agreements are often presented as “lease options”.
For a modest payment, the solar company holds the exclusive rights (but not the obligation) to rent the property. As a rule, the option covers at least one year, but can also be insured over several years. If the land is the subject of a lease option, the land cannot be leased to another company and long-term planning must take into account the possibility that the option will be exercised at any time during the term. Most options include either a specific lease agreement that will take effect with the exercise of the option, or a statement of the main terms that will be included in the lease agreement. It is therefore important to negotiate the terms of the lease before the option is granted. 7. Tax ConsiderationsMost contracts/easements provide that the solar company pays higher property taxes due to the installation of photovoltaic installations. However, amendments may be necessary to address a possible “non-recovery” or the collection of reconquest taxes due to the loss of the “agricultural land” classification.
If you have any further questions regarding solar land use agreements, please contact Scott Storey at 517.371.8159 or firstname.lastname@example.org. 8. Most landowners want the lease to require the solar company to restore the property after the lease ends. These provisions should include the removal of all equipment to at least the depth of the plow and the removal from the field of the hazardous conditions created by the solar company. While any solar land use agreement may be unique, there are a few considerations that are common to many of these agreements. 3. ConfidentialityAll lease agreements and rental options contain confidentiality clauses applicable to all terms of the contracts, including financial terms and even the identity of the solar company. Therefore, once an agreement containing a confidentiality clause is signed, notifying your neighbors of the terms of the agreement may constitute an infringement. A second factor that fuels the recent development of solar energy projects is the tax relief from the Confederation of Photovoltaic Installations.
Tax incentives fall from 30% to 26% for projects launched in 2020 to 23% for projects launched in 2021 and 10% thereafter. Thus, developers have a strong economic incentive to start their solar photovoltaic installations in order to maximize the tax advantage of the Confederation. 5. Renewal conditionsLike leases have an initial term of 10 to 25 years, which gives the solar company the right to terminate the lease prematurely if the project proves economically unfeasible. These leases often allow the solar company to extend the lease for several successive five-year periods. The combined renewal terms often correspond to the initial term of the lease agreement. 4. ExclusivityLease agreements contain exclusivity clauses that prevent the landowner from renting other real estate to a competing solar energy company.
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