Wind farm leases – common pitfalls

Developers are increasingly looking to contract with rural landowners to develop wind farms and other forms of renewable energy.

While these contracts can provide valuable alternative revenue streams for primary producers, they can also carry common pitfalls which are often not realised until it is too late.

Licensing the entirety of the land

Developers often want to take possession of, and licence back to the landowner, the entire parcel of land, not just the section of land where the infrastructure will be located. This can cause problems if a landowner later wants to sell, as a purchaser may be reluctant to accept a mere licence interest for the entire parcel of land.

Caveats

Upon signing a contract, a developer may lodge a caveat on title. This can cause problems when it comes to selling the property, or obtaining finance, if there is no contractual obligation on the developer to remove the caveat.

Making good

The developer will usually take the above ground infrastructure with them when they leave.  However, they will often leave behind below ground and other infrastructure such as large concrete bases which the landowner then must remove, unless the contract requires the developer to make good the land.

Environmental indemnities

Most relevant to battery storage, many contracts contain inadequate indemnities if the developer causes environmental harm; meaning a landowner could ultimately be held liable for significant remediation costs.

Outgoings

Many contracts contain insufficient or imbalanced provisions about the payment of outgoings.

Land banking

Landowners should be wary of being pressured to sign up to exclusive option agreements which block the landowner from dealing with any other developer for multiple years. While these agreements may confer a valuable call option fee, the proposed developments are often speculative and never approved. In the meantime, the landowner may miss out on negotiating a truly valuable contract for a legitimate project. Further, many option agreements provide the developer with a broad ability to vary the land being leased. Ideally, any variation to the leased land should not exceed 5%.

It is important to remember rural landowners are entitled to negotiate the terms of any contract.  With developers eager to lock landholders into deals, landholders have leverage to negotiate fair terms. Through early legal advice many of the above pitfalls can be avoided and a fair and mutually beneficial agreement reached.

Daniel Fullerton,
Principal Lawyer
T 03 52255203 | M 0412 381 667
E dfullerton@ha.legal

Jamie McCallum
Senior Associate
T 03 5226 8563 | M 0408 270 480
E jmccallum@ha.legal