Renewable and solar farm developers continue to seek grid and planning consent across the UK as demand for clean energy accelerates. While this is partially driven by the current political climate, the demand for UK produced clean energy is likely to continue to increase, exacerbated by the current situation in the Strait of Hormuz.
For many landowners, renewable schemes such as solar, wind or battery offer an attractive new source of long‑term, stable income. But before signing up to such a scheme, it is vital to understand what the project will mean for your land, your farming operations and your long‑term interests.
A solar farm lease typically runs for 35 to 40 years, so the decision has lasting implications. Panels require as much solar radiation as possible, meaning the site cannot be shaded by trees or buildings. In some cases, the location of substations or underground cables associated with the scheme can limit how you use the remaining areas of your land.
A renewable energy project cannot proceed without a connection to the electricity grid, either with the distribution network operator (DNO) or directly with national grid. The developer must obtain a grid approval and the DNO may require rights over certain parts of the land to install, maintain or upgrade equipment. These rights typically need to be formalised through easements or separate leases.
Option agreement
Developers will seek an option agreement, which gives them a set length of time to apply for planning permission, after carrying out the necessary surveys, and finalising their grid connection. In this period, landowners will not be able to discuss the site with other renewable developers, and the developer will have the legal right to activate their lease.
Solar farm construction
The developer will need suitable access for construction vehicles and machinery. They may also need space to store equipment or soil. Any damage must be repaired or compensated. Ensuring the access route is appropriate and does not interfere with your own operations is an important early discussion point.
Developers are responsible for keeping the site safe and tidy, managing weeds, rubbish and drainage, and generally maintaining the area around their equipment. We would also recommend any lease includes reference to a Schedule of Condition – a clear record of your land’s state before work starts. You may also consider soil reports to protect you at the end of the lease.
Solar farm income
Solar rents are typically around £1,000 – £1,250 per acre per year and leases often include a share of revenue from power generation, giving landowners a potential upside when the developer’s revenue is high. There may also be additional payments for Battery storage facilities, construction compounds or other operational facilities
While it is considered likely that these schemes represent a secure supply of income, developers are likely to insist on a clause offering them the opportunity to end the lease early in the event the scheme becomes unprofitable for them. If such a clause is agreed then the income stream will not be guaranteed for the full length of the term.
Decommissioning a solar farm
We would also expect a Developer to offer some reinstatement security – to ensure that when the lease ends the land is returned in the state and condition required by the lease. Security may take the form of a bond, insurance policy or bank guarantee which will add a layer of protection for the landlord to ensure the Developer complies with its reinstatement obligations at the end of the term.
In practice, an independent professional will often review the site (usually after the first 10-15 years) and provide a reasonable estimate of the costs of the tenant complying with its decommissioning obligations. The Developer would then place the reinstatement cost into whichever bond/guarantee has been agreed, either in full or in stages. The landowner should have access to this money in the event the developer is not able to decommission. This bond is then reviewed and topped up at regular intervals which serves as essential financial protection for landowners.
Other factors
There will be various other factors imposed on the landowner such as a restriction on the ability to sell the freehold land without first ensuring that the incoming party agrees to be bound on the same terms as the original lease. Ideally, the lease would also include an option for you as landowner to designate an alterative part of your land for the location of the substation and/or the underground route for cables. Whilst you would have to pay such relocation costs (which are likely to be very expensive), it is important to ensure that any further development prospects are protected given the length of the solar lease term.
From an inheritance tax point of view, a solar farm is not considered agriculture and is not a trading activity so any landowner wanting to consider diversifying into solar must also take specialist tax advice to avoid any unintended consequences.
As you can see from the above, there are a broad range of considerations to be taken into account before proceeding with a renewables project, many would say that given these are such long term agreements, the devil is in the detail and our experienced teams are delighted to discuss specific projects in more detail.
This article was written by Nellie in collaboration with Anthony Field of Strutt & Parker’s Guildford, we thank Anthony for his input.
