Negotiating Solar Leases - Perspectives of Developers and Landonwers 01.29.2020

NEGOTIATING SOLAR LEASES – ISSUES FOR DEVELOPERS AND LANDOWNERS
SCOTT D. DEATHERAGE
S Deatherage Law, PLLC
2101 Cedar Springs Road
Suite 1010
Dallas, Texas 75201
214-356-0979
scott@sdeatheragelaw.com
The University of Texas School of Law

2012 RENEWABLE ENERGY LAW COURSE
January 27–28, 2020 Austin, Texas
Table of Contents
I. Introduction ............................................................................................................................................... 1
II. Beyond the Law: Building Trust between the Parties .............................................................................. 1
III. First Things First—Lease or Option to Lease; Lease and/or Easement ............................................... 5
IV. Show Me the Money—Rent, Royalties, and Other Payments ............................................................... 7
V. As Good as it Gets—Most Favored Nations Clause .................................................................................. 9
VI. Where Is It Going to Be? —Defining the Area to Be Leased ................................................................ 9
VII. What Are You Going to Do? —Defining Permitted Uses ................................................................... 10
VIII. Storing It Up--Energy Storage ............................................................................................................ 11
IX. To and Fro--Specific Easements ......................................................................................................... 12
X. How Long Will It Last? —The Lease Term ............................................................................................ 13
XI. Taking It to the Bank—Lender and Tax Equity Issues ...................................................................... 15
XII. Mineral Interests and Protections for Solar Farms ............................................................................ 17
XIII. Who Is up Next? —Assignment .......................................................................................................... 18
XIV. What Could Go Wrong? —Default and Remedies ............................................................................. 19
XV. Who Is Paying the Lawyers? —Developer Payment of Landowner Attorney’s Fees ......................... 20
XVI. Got You Covered—Indemnities and Insurance .................................................................................. 21
IV. Before You Go—Restoration and Restoration Bonds; Transferring Solar Facility to Landowner in
Lieu of Restoration ........................................................................................................................................... 25
V. Conclusion ............................................................................................................................................... 26
I. Introduction1
While there are many similarities in utility-scale solar leases, there is no true "form" lease used across the
country. Solar leases address many if not most of the same issues, but the actual language may vary
substantially from one developer form lease to another. The contract that emerges after negotiations with
a landowner seldom is the same as the form lease first delivered to the landowner by the developer. Good
legal practitioners will modify their form lease as new language developer in a particular lease negotiation.
An accommodation with one landowner that maintains the developer’s objective may save time in
negotiation with a future landowner if adopted in the form lease.
Having worked on over 50 solar leases (and wind leases as well), mainly for developers but also for
landowners, I have seen a variety of lease forms and different drafting of the same provisions in those
forms.
The leases are long, single-spaced documents. Negotiating these leases often take weeks if not months.
Patience is key in these transactions.
This paper will address many of the key issues for solar project developers and landowners that are
frequently negotiated. As discussed in the next section, the relationship developed with the landowner
may provide a significant benefit for both parties in terms of reaching an understanding of both parties’
interests and concerns and lead to a more balanced result in a shorter amount of time.
II. Beyond the Law: Building Trust between the Parties
A. Issue: For lawyers and perhaps even more so for the technical people or businesspeople
working for solar developers, the negotiation of a ground lease can become a technical process, one of
many leases needed for a project and only one of many projects being developed. For the developer
representatives, when a landowner or their attorney make significant comments on a lease, they may feel
frustration and to some extent disdain for the landowner or their counsel. Afterall, they are the experts
and understand the practical and business aspects of the deal and the needs of their future lenders and
investors. The landowner negotiates a lease once; developers, many times.
For landowners, and for counsel representing them, it is a different perspective. In many states,
particularly Texas, land may have been in the family for decades or even more than a century. The
emotional attachment to the land may run deep with landowners and their families. The landowner and
his or her counsel can become frustrated that the developer and its attorney do not agree to revise the lease
based on what the landowner and their counsel think are reasonable requests for accommodation of the
1
This article and the information contained in this article are provided for informational purposes only and not for the
purpose of providing legal advice. You should not act or refrain from acting on the basis of any content included in this this
article without seeking legal or other professional advice. The contents of this article contain general information and may not
reflect current legal developments or address your situation. You should contact your attorney to obtain advice with respect
to any particular issue or problem. Review of and use of information contained within this article do not create an attorney-
client relationship between the author, his law firm, and the reader.
NEGOTIATING SOLAR LEASES 1

interests of the landowner. They may believe the developer just rejects reasonable changes requested by
the landowner.
Emerging from these positions and perspectives are often prolonged negotiations, a lack of trust between
the parties, and much frustration.
Experienced lawyers know that the technical and economic aspects of negotiations of contracts are not the
only factors influencing how negotiations progress. The emotions of the parties, whether they like or
dislike each other, or whether they trust each other, and whether they believe the other side cares about
their concerns can play a significant role in the timing and outcome of the negotiations. This is no truer
than in the negotiation of a solar ground lease between a solar developer and a landowner.
The personality and business experience, age, and a variety of other characteristics of the landowner can
be of major importance. No two landowners are the same. Perhaps no two developers or their
representatives are the same.
While there are obviously similarities in solar lease negotiations, no two negotiations are the same. Often,
they take their own path and require patience on both sides.
Thus, a certain level of emotional intelligence, adaptability, and willingness to establish trust between the
parties is a prerequisite to success.
B. Developer View: Developers and their counsel have spent a lot of time developing their
form leases and often these forms have evolved based on negotiations with many other landowners.
Developers and their counsel, however, may be best served by trying to understand the landowner’s issues
and concerns, while convincing the landowner and his or her attorney that certain provisions and language
are necessary to ultimately meet the needs of the investors and lenders who will provide the funding for
constructing the solar farm that will produce the income both parties seek.
Steering through the proverbial rock and hard place takes empathy for the landowner and attorney and
their concerns, while persuading them of developer or tenant needs and those of the financial parties.
What you have to realize and have to convince the landowners is there are people the developer has to
negotiate for that are not at the table. The developer is negotiating on behalf of the investors and lenders
who may not be identified until later.
I always tell my developer clients to warn the landlord about what is coming. Many landowners may be
accustomed to fairly simple crop or cattle leases for their land. Such leases may be only three to four
pages long. When the solar lease is sent to the landowners, it is key to let them know in advance that a
long lease is coming and why it is so long. Many landowners are upset when they receive a 30-page or
longer lease with multiple attachments from a memorandum of lease to solar insolation easements,
roadway easements, and utility easements. Combined these documents may be 40 or more pages long.
This can be a shock to the landowner. Key to the process is the developer representative telling them in
advance that the lease will be long and that it addresses the concerns of the investors, tax equity investors,
and lenders. Spending a little time to explain briefly project finance and the specifics of solar project

finance may give the landowner a better understanding of the need for the longer solar ground lease than
the short crop or cattle lease they may be accustomed to reviewing.
Explaining in advance why the lease is so long may be the start of a more productive negotiation with the
landlord. Unfortunately, the typical practice is for the developer to send the lease by email with no prior
discussing with the landowner as to the length and nature of the lease.
The developer and its counsel should try to avoid too much reliance on the argument that the lease is the
form the company has used many times and that the provisions have been drafted to address key issues.
A “take it or leave it” approach is not helpful. While the developer side has and will usually continue to
negotiate several leases, sometimes for the same project, the landowner may only see the lease for the first
time and the only time.
Remember, the interaction with the landowner regarding the lease is often an educational process. The
time taken to explain the specific terms to the landowner and its counsel can be effective in moving the
process forward. Even the landowner’s attorney may not be familiar with solar leases, even if they have
experience with commercial leases.
Attempting to show flexibility to amend the lease and bend where possible also goes a long way in moving
the process forward and speeding up the development of a final lease.
On the other hand, there are cases where a reasonable lease cannot be negotiated. At some point,
preferably as early in the process as possible, the developer needs to determine whether a lease can be
negotiated, or it is a waste of time. I have been involved in negotiations for a developer where I had to
convince the developer representative that the process would not likely ever result in an acceptable lease.
The reason may be that the landowner is simply not going to be reasonable and continue to insist on
changes to the lease that will not be acceptable to a developer or future investors or lenders. Sometimes,
although in rare cases, the landowner is simply too idiosyncratic, or their perspectives are such that a solar
farm is simply not right for that person. In one example, a landowner was explaining how the land was
original prairie grass. I had to explain to him that the construction and operation of a solar farm over 30
or more years would not preserve native prairie land. In other cases, the landowner kept renegotiating the
lease and changing his mind about previously agree upon provisions. That proved to be a property the
developer needed to walk away from and eventual did so after probably spending too much time and
attorney’s fees attempting to find language that both sides could accept.
C. Landowner View: The emotional nature of the transaction with landowners is something
that both the developer and its counsel and counsel for the landowner must always remember. A good
“bedside manner” is key to working with landowners who have both a rational business side to the deal
and an emotional attachment to the land.
In one project where I represented a family group with six representatives, the land had been in the family
since the 1800s, back to a land grant to a forefather. Thus, the land was a long-term investment and
generator of income, but also held tremendous personal value to many of the family members. Often the
grandparents own the land, and their children and sons and daughters are the main representatives. Often,
there is no interest in selling the land, but only in keeping it in the family for future generations.

Where families are involved each family member may not hold the same view, so care in working with
them to obtain a decision may be needed. As we go through the examples of many issues that arise in
negotiating solar leases, much of the discussion is a straight business or economic issue, but emotion may
color how the landowners discuss the lease and the revisions proposed in the lease.
Attorneys representing landowners may consider a brief explanation of the solar development process and
how solar projects are financed. A general explanation of the lease and its more significant provisions is
often helpful.
Attorneys representing landowners need to appreciate that the landowners may have significant business
experience or may be novices. Some landowners will have very specific issues, concerns, and questions,
and want to go through the lease in detail and develop revisions. Other landowners may ask the attorney
to tell them what they should be concerned about and leave to the attorney all comments on the lease and
negotiations with the developer.
I have represented landowners with three lawyers in the family, a local outside counsel, and those with no
experience in negotiating a contract. I have worked with families with a 10,000 or more-acre ranches
where 1,000 or more acres are being leased to as small as an 80-acre tract where only 50 acres was being
leased to serve as a small part of a much larger project with multiple landowners.
Sometimes, depending on the state and location of the property, the solar lease may pay far more than
even the best years in farming or cattle raising, so interest in leasing the land for a solar farm may be high.
I worked on one lease where the family was expecting to generate almost $100 million over 30 years
(undiscounted to present value). Other leases I have negotiated may generate a few thousand dollars per
year.
Some landowners simply should not lease their land for a solar farm. An example is a landowner that
wished to preserve natural prairie land on their property. A solar operation contradicts that goal—so a
lease should not have been pursued. Landowners who want to lease or sell the land for a high price, often
the case with land closer to large cities, are not good candidates. Landowners need to understand that they
are giving up control of their land for decades. Where that troubles landowners, then a solar farm may
not be a good use of their property. Attorneys representing these landowners should try to discuss the
impact of a solar lease early on to make sure the landowner understands the lease impact and that they are
prepared to tie up the land for such a long time and what the solar operation and lease mean for the property
and the landowner.
D. Attempting to Understand the Other Party
Experience representing both sides of these leases, or at least taking time to understand the motivations,
emotions, and concerns of the other side in the transaction, may prove very helpful in ultimately providing
a process where the parties first develop a certain level of trust and form a foundation of a relationship
through the lease that will serve the landowners, their children, and sometimes even their grandchildren
with income from a solar farm operating on their land for decades to come.

III. First Things First—Lease or Option to Lease; Lease and/or Easement
A. Issue: The first consideration in initiating a site control process is deciding whether to seek
an option to lease or to negotiate an actual lease. Solar leases tend to have built in options as the developers
typically have the right to terminate the lease during a development term in which the developer conducts
various due diligence and interconnection work with the grid manager, public utility commission, and the
transmission grid operator. Until construction begins, the developer usually may terminate the lease for
any reason.
B. Developer View: For developers, options have the benefit of generally taking less time to
negotiate so an agreement can be obtained quickly by the developer to lock up the land for a short period.
A developer may seek to enter into an option until certain due diligence steps are completed, such as an
environmental site assessment or initial analysis of the capacity of a nearby transmission line to transport
the electricity generated from the planned project.
The problem with most options is that the negotiation of the lease is left for a later time. If the developer
completes whatever analysis it considers necessary and then attempts to negotiate the leases, then the
landlord may believe that he or she has leverage over the developer and may be more aggressive in
negotiating the lease and its many provisions, including rent.
Another approach is to negotiate the lease during the option negotiation and attach the lease to the option
agreement. Some developers do not take this approach as the landlord may still hold out in signing the
lease even after the developer exercises the option. Fearing the landowner’s potential bargaining leverage,
many developers simply negotiate a lease and avoid an option to lease. The development term allows
them the right to terminate the lease and operates much like an option agreement.
Sometimes the developer may enter an option to lease to avoid the potential risk of environmental liability
by entering into a lease. While entering a lease by itself may not in all states and all federal court
jurisdictions impose liability on a lessor or landlord, this may at least argue for some developers concerned
about environmental liability to enter into a short term lease to allow an environmental assessment of the
property, followed by negotiation of a lease.
Some developers draft either a combined lease and an easement or an easement drafted similarly to a
lease. For the developer, an easement may convey a property interest that cannot be voided or rejected in
the bankruptcy proceeding of a landowner. A lease, although also a property interest, may be voided or
rejected by a bankruptcy court as a contract.
Certain merits apply to seeking an easement as the governing document and principle in the landowner
and developer relationship, as grantor and grantee rather than landlord and tenant. Developers may be
concerned that if a threshold of foreign ownership is exceeded, then filing or registration requirements
may apply under the Agricultural Foreign Investment Disclosure Act (AFIDA)2 reports with the Farm
Service Agency County Office that maintains reports for the county where the land is located. Reports
are required of the following:
2
See 7 U.S.C. § 3501-3508; 7 C.F.R. § 781.

• Entities in which interest is held by 10 percent or more foreign persons or groups of foreign persons
acting in concert;
• Entities in which 50 percent interest is held by a group of foreign persons not acting in concert;
• Individuals with direct ownership;
• Individuals with indirect ownership; and
• Individuals who are direct holders of leases for 10 years or more.
Under the AFID, agricultural land is defined as any land used for farming, ranching or timber production,
if the land involved exceeds a total 10 acres or more. Failure to submit any required filings may result in
fines up to up to 25 percent of the fair market value of the agricultural land.
Several potential challenges arise from this approach. While it may sound at first blush like a good idea
to use an easement or a lease and easement as the purported legal document between the parties, there are
downsides. In some states such as Texas require certain language to be used to effect certain outcomes in
easements. In my experience, this may not have been fully evaluated and the language of the document
properly edited to reflect this risk of legal interpretation of a court that would contravene the intent of the
parties.
The so-called “easement” is generally just a lease with the names changed and the names of the parties
changed. Drafting to consider the law of a particular state regarding easements may not have occurred.
Thus, how the document would ultimately be interpreted by a court may not be known by either party.
This could create ambiguity in the agreement and unintended consequences that neither party expected.
To redraft a lease considering easement law could be time consuming by the developer’s counsel, but
probably should be done if the goal is to use an easement in lieu of a lease.
To combine the lease and easement into one document may present other legal interpretation issues. A
body of law surrounding easements may be different that the body of law regarding leases. Mixing the
two may only create potential ambiguity.
Having raised the potential risks with this approach, a well thought out and redrafted document as an
easement may provide several benefits. Those issue simply need to be thought through. That analysis is
beyond the objective of this paper as few solar leases are proposed as easements.
Developers and their counsel who seek to use an easement agreement should come prepared to explain
the use of an easement before sending the document and be able to justify the easement to the landowner
and its counsel. Such parties should also be prepared to address the concern of how courts interpret
easements differently than leases and any specific legal analysis and drafting was performed to address
this concern.

C. Landowner View: Most landowners and their attorneys would prefer to enter into a lease
as opposed to an option or an easement. A lease suggests a more detailed agreement and the nature of the
relationship, rights and obligations, and the potential economics of the arrangement are spelled out in a
lease rather than an option. The landowner is generally seeking a long-term, economically significant
agreement. The entering into a lease suggests a more serious developer that will more likely ultimately
build the solar farm, which will pay the landowner much like a bond—annual payments on which the
holder can rely.
Suggestions of easements may just confuse the landowner and his or her attorney. The concerns with
interpretation of a lease simply rebranded as easement may create fears of ambiguity and the risk that the
developer will be relieved of some of its obligations or that unexpected obligations will fall on the
landowner.
Landowner attorneys will rightfully be concerned about calling a lease an easement. Easements are a
nonpossessory interest in land owned by another person that allows the nonowner the right to use such
land, usually in a limited way—leaving the owner to use the land, generally including the easement area,
only subject to the limitations of the easement.3 The rights normally conveyed by a landowner to a
developer are possessory and the landowner has little use of the property during the term of the lease.
Thus, an easement may seem inappropriate as the legal document and property interest to use for the
relationship between the developer and landowner. The ultimate document that is used will be a source
of negotiation by the developer and landowner. Landowners may decide to take the deal and live with the
legal questions that may surround interpretation and enforcement of an easement.
IV. Show Me the Money—Rent, Royalties, and Other Payments
A. Issue: Rent is one of the most frequently negotiated provisions of solar leases. Rent
amounts depend on the stage of the process. If a lease is signed rather than an option to lease, there is
likely to be a “development term” in which the developer will conduct due diligence, apply for
interconnection, look for a party to provide a power purchase agreement or hedge (usually in a contract
for differences), and find sponsor equity, tax equity, and debt. The development term is then followed by
a construction term in which the solar farm is actually built. The operating term begins with operation of
the solar farm and sale of electricity to a third party. The rent is higher in the operating term because solar
project is actually producing revenue that can be paid to the landowner. There may be extended terms
during development and extensions of the construction term. Rent usually increases with these extensions.
Rent is generally paid per acre per year. However, for development terms it may be stated as a fixed fee.
Some developers seek to pay a fixed fee for the entire development period.
An “escalator” is frequently discussed. An escalator results in an increase at a fixed percentage in annual

rent. The rent increases at a fixed percentage of rent, so the rent “escalates” every year. Some landowners
like this approach as somewhat of a hedge against inflation.
Some landowners ask for increases based on the Consumer Price Index (CPI), but this creates
complications discussed below.
3
McClung v. Ayers, 352 S.W.3d 723, 729 (Tex. App. –Texarkana 2011, no pet.); Marcus Cable Assocs., L. P. v. Krohn, 90
S.W.3d 697, 700 (Tex. 2002).

B. Developer View: Rent is derived from the economics of the project. Solar developers
generally develop rent based on the estimated revenue of the project, interest payments, returns to their
sponsor and equity investors, and then profit for the developer.
In negotiating with landowners, the developer should have clear information as to how much rent can be
paid to make the project meet its investment hurdles and be willing to state no more can be paid in rent.
An explanation of the reason for the cap should be provided to not just appear arbitrary as to payments to
landowners.
Developers often include escalators in the initial draft lease. An escalator is generally easier to justify if
the power purchase agreement (“PPA”) has an escalator built into that contract. Without an escalator in
the PPA, the developer must carefully analyze the economics of the project over 20-30 years to determine
the impact of a rent escalator on the profits of the project.
Changes based on the CPI are challenging for a developer as it cannot predict the future rents and, thus,
has a hard time estimating returns and debt coverage and payments to tax equity or sponsor equity
investors. Generally, developers try to avoid the CPI as a rent escalator.
Royalties are sometimes requested by landowners. Developers generally refuse to pay royalties in lieu of
or besides rent. In only one instance, in the many leases I have negotiated has a developer agreed to pay
royalties.
In constructing the project, the land will be disturbed. However, at the end of the lease, the land is
generally restored to its pre-construction condition. Thus, surface damages rarely are paid by developers.
C. Landowner View: Landowners want to maximize economic returns. Rent is the main if
not only source of revenue. Knowledge of the “market rent” is generally a fairly difficult issue to analyze
and it can often depend on location in terms of a state or areas within a state, particularly large states such
as Texas where solar insolation varies from east to west and north to south. A variety of other factors
such as interest rates and land value—land is more expensive the closer it is to larger cities—affect rent
rates.
Landowners frequently discuss rent with their neighbors, so there may be an understanding of what the
same developer is offering other landowners if multiple tracts are being leased for a single project, or what
other developers have offered landowners in the same county or other nearby counties.
Landowners will generally ask to increase the rent payment during the development term so the first year
through say the third or fourth year of the development term includes an increase every year. This can
become a contentious issue if the developer does not want to pay additional rent every year or increase
the rent every year during the development term.
Escalators are generally insisted upon by landowners. Use of the CPI is a preferred approach as it better
reflects annual inflation and, from an economic perspective, ensures that the landowner is being paid the
“same” amount for rent if inflation is taken int o account. An agreement by a developer to insert the CPI
as an escalator is fairly rare.

Royalties that may be more common in wind leases are rare in solar leases. Landowners may want to
seek royalties to address concerns that the rent may not keep up with inflation—today’s dollars will be
worth a lot less in 10 or 20 years and, therefore, from the landowners’ perspective be a declining value in
payment during the lease. Payment of royalties, however, while common in wind leases, is rare in solar
leases.
V. As Good as it Gets—Most Favored Nations Clause
A. Issue: Landowners and their counsel when reviewing leases do not have complete insight
into the market for rent and other provisions of the lease from a developer. Leases usually have a
confidentiality provision that may prohibit a landowner from sharing the terms, such as rent, with other
landowners. This challenge arises when a developer is leasing several tracts of land for a single solar
farm.
One way of addressing this issue is to insert a “most favored nations” (MFN) clause in the lease. An MFN
clause provides that the lease being signed will be amended if the developer enters into a lease with better
terms with another landowner in a specified geographic area, such as a particular county, or within a
certain distance from the property covered by the lease. Sometimes this is limited to a solar project that
has multiple landowners to reach the number of acres necessary for a particular project.
The MFN can be limited to rent or other specific provisions or be broad and cover the lease.
B. Developer View: Developers rarely like MFN provisions as it requires them to monitor
other leases with other projects and notify the landowner and then negotiate a lease amendment. The
developer’s staff and attorneys are usually very busy and fear they will overlook this step and could be
sued for failure to abide by it. The issue most tracked are rent rates. The developer may sell projects and
the new buyer then may need to monitor other projects. MFNs are a potential headache for developers
and future buyers of projects.
C. Landowner View: Landowners and their counsel are quite fond of these provisions because
they may enable the best rental rate and overcome lack of market knowledge. As stated above,
landowners are seeking the highest rent possible.
VI. Where Is It Going to Be? —Defining the Area to Be Leased

A. Issue: The land to be leased would to be a relatively straight forward issue to resolve.
However, if a property is, for example 600 acres in size, not all of the property may be leased. Because
of the limitations in how much of the land can be used for constructing a solar lease or preferences of the
landowner that certain areas of the land not be used, can lead to a carve out of a smaller area of the
property to form the leased premises.
B. Developer View: The developer will want to exclude from the lease, and therefore the
acreage for which rent is paid, land that cannot be used for the solar farm. For example, the developer
will want to exclude areas with wetlands, rivers, streams, trees, endangered or threatened species habitat,
and certain other parts of the property for which a solar farm cannot be installed for physical, legal, or
other reasons. Thus, the final leased area may be smaller than the original area stated in the lease.
The timing of the decision of how much land will ultimately be leases and who makes that decision are
key issues in the lease. Developers may not know exactly how much land will be needed for their project
at the time of leasing the land, particularly where relevant environmental and interconnection studies have
not been conducted.
As a result, developers prefer to determine the area to be leased during the development period. The
process they may prefer is to have the power to notify the numbers of acres to be leased and to provide a
survey of that area that ultimately governs the lease and is used to amend the property description of the
leased area that replaces the property description of the entire tract owned by the landowner. Thus, the
right to make this decision would fall to the sole discretion of the developer.
C. Landowner View: Landowners will want restrictions on this sole discretion. One step a
landowner can take is to require a minimum amount of land. Thus, a minimum amount of revenue is
guaranteed if the solar project goes forward.
Landowners may also want to exclude certain area of the property from the lease. Examples include water
bodies, certain forested areas, areas where barns or houses are located, or certain historical areas.
A landowner’s counsel may insert a provision in the lease that provides that if the tenant elects to take less
than all of the acres of the originally intended leased premises, the tenant must provide written notice of
that fact to the landlord before the end of the development term. If notice is given, the landlord may want
to have the option to terminate the lease by giving notice within a proscribed period of time.
Alternatively, landlords may insist the developer lease a minimum number of acres or that that the rent
reflect a minimum number of acres or the number of acres actually leased, whichever is greater. The
minimum, or if higher numbers of acres rented, would then be multiplied by the annual rent per acre. This
would result in a minimum payment regardless of the number of acres leased.
VII. What Are You Going to Do? —Defining Permitted Uses

A. Issue: The definition of the permitted use may seem simple. The lease need only provide
that the developer will use the land to construct and operate a solar photovoltaic system on the leased
premises. Simple right? The challenge is that the solar developer will want specific lists of what it can
do and then catchall phrases that are very broad. The landowner will want to constrain the uses to a clear,
and limited set of uses.
B. Developer View: Developers prefer as much leeway in land use as possible. As the project
may be in place for 30 to 50 years, the developer prefers leeway in activities it may engage in and the
ability to “repower” with new, better solar panels and the ability to install energy storage. This may lead
to several paragraphs describing uses, types of material and equipment that may be installed or buried at
the property from transmission to many other things.
General language often found in solar leases for permitted uses is as follows: “converting solar energy
into electrical energy, and collecting, storing and transmitting the electrical energy so converted.” Other
provisions allow for conducting studies related to solar energy conversion, solar energy falling on the
property, meteorological data, environmental issued, geology, and soil. A lengthy discussion of
construction activities is common.
An issue that may arise is the construction of a substation on the property. This may not take up a lot of
land but may require the sale of property to a transmission utility. Thus, the parties may negotiate the
terms allowing construction of a substation and any sale of property to a utility.
The developer may insert language to prevent certain actions by the landowner that would interfere with
the operations of the solar project. One key issue is to prevent any activities or construction that would
shade the solar panels. This may affect uses on property owned by the landowner not part of the leased
premises, whether part of the same tract or adjacent tracts.
C. Landowner View: Landowners, concerned about impacts to their land, and if they own
it, adjacent land, may object to the breadth of the uses proposed by the developer. Landowners
generally seek to limit the described uses to solar photovoltaic facilities. The extensive language often
included in some solar lease forms from developers include provisions that could be construed to allow
other forms of energy generation such as wind and natural gas turbines. While this may not be what the
developer intends, the landowner may object to broad terms and revise those provisions to limit the use
more clearly to solar power generation activities.
VIII. Storing It Up--Energy Storage
A. Issue: As energy storage prices have fallen and as new technologies with even lower costs
become available, developers are considering installing energy storage at solar farms. If energy storage
is not inexpensive enough now to make installation profitable, it will be in a few years. The declining
costs of lithium ion batteries continues to fall. Other technologies are being developed that may prove
very inexpensive particularly at utility scale. What are known as “flow” batteries use electrolytes of
various chemistries and consist of large tanks with piping between them. These storage technologies may
provide longer-term storage with less toxic and nonflammable chemicals and ultimately be even less
expensive than lithium ion batteries.

A. Developer View: The ability to store energy and discharge it even over a four-hour period
may provide a major economic benefit to developers. Solar leases generally list energy storage as one of
the long lists of equipment or facilities that may be installed. Little more is generally included in solar
leases for energy storage. Under a typical lease form, the developer would generally have unlimited power
to determine whether to install energy storage, the type of energy storage to install, and the location of the
facility.
Since the developer may have no specific plans at the time of signing the lease what if any energy storage
it may install, the objective is to obtain the right to install energy storage when it becomes profitable.
A. Landowner View: The landowner may seek a percentage of any profits from energy
storage. The landowner may claim that that any new revenue from energy storage should be shared
with the landowner. The negotiation of additional rent could be challenging because the economics may
not be known.
With some lithium ion batteries, the potential for thermal runaway may cause a significant fire risk from
installation of batteries on the property. A utility scale battery west of Phoenix, Arizona has raised concern
over fire risk from these facilities.4 I have drafted provisions for a lease that include an emergency
response plan the developer would have to implement if energy storage is installed after the lease is signed.
IX. To and Fro--Specific Easements
A. Issue: Easements are part of every solar lease. The language and type of easements
frequently become points of discussion between the parties.
Some easements a developer may pursue include:
1. To use, convert, maintain and capture the free and unobstructed flow of solar energy
resources over and across the premises;
2. To access the leased area requires an easement for ingress and egress across the
landowner’s land and sometimes a neighbor’s land;
3. To utilize, on a nonexclusive basis, any third-party access, utility, water,

communication, sewer, septic, transmission or other easements, rights of way or licenses
already held by or benefitting landowner over, under or across or benefitting the premises
or adjacent property; and
4
Arizona fire highlights challenges for energy storage, AP (June 23, 2019),
https://apnews.com/5cd81a81345a40f5b1ac2e5556a68ff7 .

4. For the installation, construction, maintenance, repair and replacement of utility
lines serving the premises.
B. Developer View: Besides specific easements in the land, the developer may insert
language in the lease that allows it to grant easements on the lease premises. The developer will want to
impose easements on any land adjacent to the property leased.
One easement that is important to request by developers is an easement that extends over, under and across
the premises, and perhaps more importantly, over the landowner’s adjacent property, for audio, visual,
view, light, flicker, noise, vibration and any other effects attributable to the intended use of the leased
premises.
C. Landowner View: Landowners worry about easements undefined in terms of use,

location, and area. They want to have clear descriptions of what the uses may be, the location of the
easement, such as a road or transmission easement, and the width of those easements. Since the solar
panel array will consume most of the lease land, the concern is land not leased for the solar farm on the
remainder of the landowner’s tract, or on adjacent parcels not leased by the landowner.
They generally do not approve provisions allowing the tenant to grant easements in the land as opposed
to requesting easements from the landlord.
Developers can reduce landowner apprehension by providing a rough map or figure that indicates roughly
through a line on a map indicating where the easement, such as a road or transmission line, will be located.
The lease can include details as to the width, construction, whether above or below ground, and what
materials will be used.
Some landowners demand payments for easements not within the leased premises. For example, if
transmission facilities are installed on the landowner’s adjacent property, the landowner may propose a
payment be due within sixty days after completion of construction of such facilities.
In one lease I negotiated, the landlord’s attorney proposed that the tenant pay the landlord $10,000.00 per
year beginning at the commercial operations date and ending at the termination of the Lease, with an
escalator on this amount of one and one-half percent annually.
Developers may object to any of these payments and argue the economics and profits of the solar project
are too tight to accommodate such payments. The outcome may depend on the size of adjacent property
to the leased area, and the land area of the easement. It may also depend on the size of the area leased.
The larger the solar farm, the more likely a developer may agree to payments for easements in a one-time
or annual payment.
X. How Long Will It Last? —The Lease Term
A. Issue: Solar leases have several terms. Different rights and obligations may apply during
these terms and different rent amounts may apply. Solar leases generally have three terms: development,
construction, and operating.

Generally, a development term is included in the lease during which term the developer engages in the
development process. The development process generally includes a series of steps and activities. The
development term allows various studies to be performed such as environmental, geology, soil, etc. The
developer will conduct interconnection studies and apply for interconnection approval from the grid
manager and the transmission utility, and an interconnection agreement will be entered with the
transmission utility. A survey will be conducted and a title commitment will be obtained from a title
company.
The development term can be as long as four or five years. Often, this term is broken down into year-
long terms in which the developer must send notice to the landlord and pay the next year’s rent or payment
to initiate the next development term. These are often called extended development terms. The rent paid
generally increases with each year and extended development term.
During the development term, the developer determines if it will go forward with the project. Normally,
the developer receives the right to terminate the lease during the development term.
The construction terms is as the name suggests the period in which the project is constructed. Construction
terms can be two years or more.
Finally, the operating term is the period in which the project is constructed and generating electricity.
Operating terms can be up to 40 years or more and can be divided into an initial operating term followed
by several extensions. The initial construction term may be 20 to 30 years. Extension are usually allowed
for one or more extended operating terms of five or 10 years.
B. Developer View: Developers prefer long development terms. This allows the developer to
conduct its studies and time financing and construction based on the federal solar investment tax credit
(ITC), solar tariffs, electricity prices, and other factors that affect the profits generated by operating a solar
farm and selling electricity in a particular location and electricity market. Developer often insert five to
seven years in total of initial and extended development terms.
Developers prefer two to three years to complete construction if some action is necessary to initiate
construction such as meeting the safe harbor provision under guidance provided by the Internal Revenue
Service to initiate construction and preserve the highest ITC rate. Other economic factors may argue for
delaying further construction. For these and potentially other reasons, the developer will want to allow
more time to start and finish construction. The larger the project, the more time the developer may want
to construct the project once the construction term is initiated.
Another approach provides that the construction term does not begin if only work is completed to protect
the ITC. Such work is included in activities allowed during the development term, and excluded from
actions that result in the commencement of construction as defined under the lease.
Because solar panels have 20-25-year warranties and to make the economics work for solar projects, long
periods of operations may be necessary, the developer will seek as much as 50 years with an initial term
and optional extended terms to operate the solar farm. Replacement of solar panels during the term may
occur as well if the technology advances to such an extent the investment in new panels would be
sufficiently profitable.

Energy storage, as discussed above at some point will increase the profits of a solar farm. If so, then the
tenant will want to have the flexibility not only to install energy storage, but to extend the life of the solar
farm to increase the value of the project for sale or to increase future profits if the owner of the project
intends to operate the project.
C. Landowner View: The landowner will be considering the project in either shorter-term
economic returns or longer-term impacts on children and grandchildren. The landowner generally tries
to limit the term of the development term, so land is not tied up for several years, producing little income
from solar activity. If the developer decides not to move forward with a solar project, they may want to
end the lease early, rather than a long period that does not lead to significant income. A two-year
development term is generally preferred by the landowner, but that may not be acceptable to the developer
as lead times for interconnection studies, approvals, and agreements may take a year or more along with
other studies and development of the project.
The landowner will want to know that the developer is serious about the property and spending money to
advance construction of the solar farm and generating revenue in which the landowner will share. In some
cases, the landowner may insist that milestones by inserted in the development term provision to only
allow extensions if those milestones are achieved by the tenant.
XI. Taking It to the Bank—Lender and Tax Equity Issues
A. Issue: As discussed above in the beginning of this article, developing a relationship of

transparency and trust with a landowner and their attorney, if the landowner retains one, can go a long
way in terms of a faster and more successful negotiation. One of the key issues to explain to the landowner
is the reason for the lease being so long and why there are so many paragraphs related to financial parties.
Landowners are often not familiar with project finance. To explain it briefly to them may help them
understand why the lease is drafted in the form presented to the landowner. What needs to be explained?
The developer should explain that, to some extent, the financial party provisions may be the most
important part of the solar lease. A “bankable” lease is necessary to obtaining the financing that allows
the funds to be generated that pays both the developer and the landowner. Thus, being cognizant of the
financial aspects of the lease enables the developer to explain the need for certain language to the
landowner. It is in both parties’ interests to ensure the lease provisions meet the expectations of the
sponsor investors, tax equity investors, and lenders. Otherwise, the negotiations may be in vain and the
project will never go forward. Explaining this to the landlord and its counsel is critical.

B. Developer View: The developer will insist that the financial parties receive separate notice
and have separate cure rights if the future tenant is in default. Tax equity and lenders will require this.
Developers will not risk the ability to finance the project by deleting protections for finance parties. The
lease must provide the finance parties separate notice of default and time for the finance parties to cure a
default. Finance parties will want longer periods of responding to payment default and may want a waiver
of any landlord right to terminate the lease for failure to pay.
The lenders will insist upon a subordination, non-disturbance, and attornment agreement (SDNA). If the
lease is in existence at the time that the lender records its security interest against the property, then the
security interest would be subordinated to the existing lease. The tenant and landlord must agree that the
lender's security interest in the solar farm is subordinated to the preexisting solar lease, singed in advance
of financing.
The “Non-Disturbance Agreement” part of the agreement applies to lenders to the landlord that may
have at the time of signing the lease a loan on the land. The agreement is between the tenant, the
landlord and the holder of a lien on any portion of the leased premises that provides that the holder of
the lien acknowledges, confirms and disclaims any interest in tenant’s property, and agrees not to disturb
the tenant’s possession or rights under the lease so long as the tenant is not in default under the lease.
The tenant on its part must attorn to any finance party who succeeds to the interest of the landlord under
this Lease and, all rights and obligations under the lease continue as though the interest of the landlord
had not terminated.
The SNDA is beneficial for both the lender, the landlord, and for the tenant. The relationships between
landlord and tenant and any lender with a security interest in the land and any lender with a security
interest in the leasehold interest, and the solar farm itself, are spelled out in ways that these relationships
are protected and the lenders can be assured that they can for close on the land or the leasehold interest
and maintain the operation of the solar farm.
One of the other key rights in a solar lease is the right of financial parties to obtain a new lease if the lease
terminates because of tenant default. The financial parties will insist on the ability to take over or enter
into a new lease if the tenant fails to maintain the lease and it is terminated because of a tenant default.
The developer will insist on protections for the financial parties to make the lease bankable and ultimately
be able to show the lease provides the foundation for a successful project that can pay back a loan and
return the investment of the sponsor and tax equity investors. This is one of the reasons the lease is a
foundational agreement in the solar farm development process—it enables, along with other steps, the
financing of the project.
C. Landowner View: Landowners often object to some of the financial party provisions. To
the landowner, they seem unfair and one-sided.
The concepts of subordination, non-disturbance, and attornment are technical legal concepts that need to
be explained to the landowner and sometimes to their counsel, neither of whom may have any
experience in this area.

One of the most challenging as discussed is the protections for the lender against termination of the lease.
This issue requires careful negotiation by both parties’ counsel. Finding ways to address the concerns of
the landowner and the needs of the developer’s investors and lenders requires care in revising language in
the paragraphs of this section of the lease. The discussion of termination below will delve into this issue
in more detail.
XII. Mineral Interests and Protections for Solar Farms
A. Issue: Mineral interests or oil and gas interests are key issues in solar leases. In Texas
for example, the mineral estate is the dominant estate, and can use the surface for drilling and access to
and from the drilling or production area. This could be a serious problem for solar farms as they take up
most of the area of the leased premises and normally do not leave land for drilling oil or gas wells. Surface
waivers and reservation of drill sites, or both, may be the means of addressing these oil and gas or mineral
rights risks.
B. Developer View: Developers need surface waivers from mineral interest owners and any
mineral lessees who may have rights to drill on the land. The developer may not be able to finance a
project that could have to remove a portion of the solar farm to allow such drilling.
The landowner often will provide paragraphs in the lease that require the landowner to assist the developer
in obtaining surface waivers from any mineral interest owners who hold have interests in the property.
Generally, this relates to oil and gas companies, but could include mining rights.
The developer will also require the landowner, if it owns an interest in the mineral rights, to insert
protective language in any future mineral rights agreement regarding the property.
Where the landowner does not own the mineral interests or less than 100 percent of the interests, this can
become more challenging. The developer must contact the owners and lessees of the mineral rights to
negotiate an agreement to waive the right to drill within the footprint of the planned solar farm.
Title companies may include provisions in the title policy that may provide relief for future actions by
mineral interest owners. The title company may require certain actions and agreements with the mineral
interest owners and their lessees before issuing policies with endorsements to cover future mineral interest
issues.
Another approach may prove helpful in avoiding future issues and encourage title companies to issue title
policies that protect the developer and its lenders and investors. A provision can be added to the lease to
provide that if the tenant cannot secure surface waivers from mineral interest owners or lessees, the tenant
may designate up to a certain number of sites of no more than a specific number of acres each as designated
drill sites. Within these drill sites mineral interest owner or lessee will have the exclusive right to explore
for, drill, develop, produce, and transport minerals underlying the leased premises. Rights of way for
access to the drill sites should also be provided. The tenant must have the drill sites and rights of way
surveyed and provide the survey to the landlord. The developer will attempt to avoid paying any rent to
for the acreage forming the drill sites and rights of way since no solar panels can be installed on this
reserved land.

In my form solar lease, I include drill site provisions as a matter of course as it cannot be predicted in
advance if surface waivers can be obtained. In some cases, the agreement with the oil and gas company
includes drill sites and rights of way. Thus, including this language in a solar lease is advisable for the
developer.
Another issue the developer will insist upon is there be a limit as to the depth of any drilling activity under
the solar farm. The concern is that drilling under a solar farm through directional drilling common in
development of unconventional oil and gas formations would cause damage to the solar facility.
C. Landowner View: The landowner generally will waive rights that interfere with the solar
farm. However, they may want to lease the land for oil and gas or other mineral development. Reservation
of drill sites and rights of way may solve this issue for oil and gas development. Mining would likely not
be allowed in a solar lease as the solar farm takes up the majority of the land leased, then mining would
appear to be incompatible with a solar farm.
Regarding obtaining surface waivers from oil and gas companies or other mineral interest owners or
lessees, landowners want to leave that work to the developer and not be required to go to those parties and
try to negotiate agreements or pay their attorneys to negotiate the agreements.
XIII. Who Is up Next? —Assignment
A. Issue: Assignment of the lease would not appear to be a complicated issue, but
negotiations over this issue can be a point of contention. Both parties insist on fewer restrictions on their
own power to assign the lease but may insist on restrictions on the other party’s rights to transfer their
interests.
The extent to which either party must provide notice and obtain consent to an assignment must be resolved
by the parties.
B. Developer View: Developers do not want to limit their assignment rights because they
need to assign certain rights to financial parties or to affiliates such as special purpose entities. Most solar
farms are held in a single-asset limited liability company.
On the other hand, the developer will attempt to ensure that any transfer by the landowner requires that
the new owner complies with and accepts the lease.
Developers insist on rights to assign or transfer their interests to certain parties, often without notice to the
landowner before the assignment or transfer. This is important regarding financial parties and affiliates.
In the event, the developer intends to sell the project or the membership interests in the limited liability
company that owns the project, it will reject limits on notice or approval of such sale.

C. Landowner View: In leases I have negotiated actually for developers, I have created a
provision that imposes certain financial limits on the party to which a developer may assign the lease.
These financial requirements were developed as several landowners or their counsel would not agree to
the unlimited right of the developer to transfer the interest in the lease. I have also negotiated for
landowners with developers and their counsel to develop limits on the parties to whom the developer may
assign the lease. The landowner wants to be sure the new operator has the financial wherewithal to operate
the solar facility and pay rent.
Other exceptions to limits on assignment by the developer that should be acceptable to the landowner are
assignment to a financial party providing funding for the project. Unfettered assignment to affiliates is
generally acceptable because the initial tenant will likely assign the lease to a single-asset, special purpose
limited liability company.
Landowners do not like restrictions on their ability to sell their property, even if they plan on keeping it
in the family for generations. The parties usually compromise with an agreement that if the landowner
sells the property, then the new owner must submit to the lease and all its obligations.
XIV. What Could Go Wrong? —Default and Remedies
A. Failure to pay or correct a default allows the landlord to terminate the lease and expel a
tenant. This is not the case in solar leases. Millions if not hundreds of millions of dollars will be
invested in a solar project. The developer and its financial providers will not accept being removed from
the property and losing such a large investment.
How payment defaults are dealt with may require negotiation over the right to terminate and the rights of
investors or lenders to receive notice of default and their own rights to cure defaults. Nonpayment defaults
are similarly more complicated than a typical lease.
B. Developer View: Developers in most cases will not accept a termination provision for
failure to pay or will insist upon at least very long cure periods. Some developers will insist the landlord
sue to recover funds owed without the ability to terminate the lease. The developer as stated above must
sign a bankable lease. Risking the investment from financial parties would not be considered a bankable
lease.
Some developers will agree to a long period of notice and ability to cure a failure to pay. Thus, giving the
tenant months to pay any past due rent. Similar notice and rights of cure and ability to step into the shoes
of the tenant by financial parties are generally part of the lease.
Some developers will insist that a landowner waive its right to terminate the lease or require the landowner
to go to court to obtain a judgment that rent is owed by the tenant.

C. Landowner View: Landowners find the inability to terminate for failure of the tenant to
pay rent payment difficult to accept. The debate over this issue can be one of the most contentious and
challenging to resolve. Many landowners will agree to a long period to cure such non-payment and the
ability of lenders and investors to step in and cure the default but will not agree to waive any right to
terminate the lease if rent is not paid. From the other perspective, some developers will not agree to
termination right, but will try to negotiate other remedies for the landowner.
XV. Who Is Paying the Lawyers? —Developer Payment of Landowner Attorney’s Fees
A. Issue: Landowners often ask that the developer pay the landowner’s attorney’s fees for
negotiating the lease. Some also request that during the term of the lease that the developer, or other party
as tenant, pay for the attorney’s fees incurred to assist the tenant. An example might be assisting with
obtaining a permit or adjusting a tax levy on the solar farm by a local county or other taxing authority.
B. Developer View: Some developers will pay an amount to assist the landowner in offsetting
costs to engage an attorney to advise the landowner regarding the lease. The thinking is generally that the
landowner would otherwise be required to pay an attorney when the landowner may not receive much
back from the transaction if the solar farm is never constructed.
The payments as discussed above are usually fairly small during the development term in which the
developer is evaluating whether to go forward with the project or perhaps whether the land under
consideration will be included in the project. Generally, the amount agreed to is a few thousand dollars,
and is fixed as opposed to an amount paid to cover a specific attorney invoice.
Developers generally try to avoid paying any attorney’s fees for activities or assistance required by the
landowner during the term of the lease. The concern is these are generally duties of the landlord and the
tenant should not have to pay for the expenses. During the construction and operating terms, the developer
generally claims that the payment of the rent will cover any small expense incurred by the landowner, and
it is in the interest of the landowner to act to ensure the solar farm is constructed and continues to operate,
as the landowner is receiving rent.
Payment of a successful party in litigation or other enforcement of their rights under the lease can be an
issue of debate. Some developers provide language that states that in no event shall either party or its
related persons be liable to the other party for expenses incurred in such other party’s lawful enforcement
of its rights under the lease or otherwise be liable for the other parties attorney’s fees in enforcing the
lease.
C. Landowner View: Landowners want to have their attorney’s fees covered to avoid an out
of pocket cost to negotiate a lease. The landowner may receive no significant economic benefit if the
solar farm is not constructed. Payments during the development period are generally low.
During the term of the lease, the landowner does not want to be out of pocket attorney’s fees for reviewing
property tax, permitting, or lender requests, such as proposed amendments to the lease.
Example provision proposed by one landowner attorney:

In connection with (a) the reduction of the Land as provided in Section 3(b) hereof and (b) any
request for Landlord to (i) consent to any assignment of this Lease or any sublease of all or any
portion of the Premises, (ii) waive any term of this Lease or any right of Landlord hereunder,
(iii) enter into any Non-Disturbance Agreement or any other agreement requested by Tenant or
any Finance Party, (iv) execute any estoppel certificate, grant any easement or other right pursuant
to Section 28 of this Lease, or (v) consent to or approve any other matter under this Lease as to
which Landlord has the right to approve or consent to, Tenant shall pay to Landlord an
administrative fee of $1,500.00, and shall reimburse Landlord for all reasonable attorneys’ and
consultant’s fees incurred by Tenant in determining whether to execute any such document or give
its approval or consent to any such requested matter.
The developer was not willing to accept this provision as written but sought to cut back the application
and the amount to be paid by the developer. A limited amount of attorney’s fees was accepted, but no
“administrative fees” were accepted. Other developers have rejected any such payments during the lease
term.
Recovery of attorney’s fees in the event of a dispute is generally favored by the landowner as they are
more likely to have a claim than the tenant. They also want to be able to recover attorney’s fees if they
have to sue for failure of the tenant to pay rent. Agreeing to a provision that each party pays its own
attorney’s fees in the event of a dispute, may waive certain statutory rights. In Texas, statutory provisions
provide for attorney’s fees for breach of contract claims.5 Fraud related to real estate may allow a party
to recover attorney’s fees as well.6
XVI. Got You Covered—Indemnities and Insurance
A. Issue: The indemnification and insurance provisions are important to both developer and
landowner. Indemnification is generally acceptable to some extent by both parties, but the scope of that
indemnification is generally a point of negotiation. Some of the areas of debate include negligence or
intentional misconduct, breach or default, release of hazardous materials on the property, and any
environmental claim from a third party regarding a violation or alleged violation of environmental laws.
Insurance may involve significant discussion as well. Requirements for developers to carry insurance
have been common, but requirements for landlords to carry a certain type and amount of insurance are
becoming more frequent in developer leases.
B. Developer View: Developers often provide only limited indemnities to landowners. The
developer does not want to expose the project or its financial parties to liabilities.
Generally, a developer will limit its liability for indirect, consequential, punitive, and exemplary damages.
The developer also may insert a limit of liability in terms of total dollar amount.
Environmental indemnities are complicated and generally require an environmental attorney with
experience drafting indemnities to draft these properly. I often draft them such that the developer is not
5
Tex. Civ. Prac. & Rem. Code § 38.001 (2019).
6
Id. § 27.01 (2019).

liable under the indemnity for any hazardous material or contamination discovered on the property that
was present prior to the effective date of the lease or that originated from an adjacent property not owned
by the developer entity or the developer. Since environmental liability can attach to the current owner or
operator, which may include a tenant, avoiding this liability may be accomplished by excluding it from
the tenant indemnity and including it in the landlord indemnity. Of course, it the landlord does not have
the financial ability to pay for the remediation and attorney’s fees to resolve such an environmental claim,
the indemnity may not protect the tenant. The performance of an environmental site assessment is another
means of attempting to reduce this risk.
One issue I try to address and would caution attorneys negotiating environmental indemnities to remember
is that in Texas a party must specifically agree to indemnity another party for the first party’s own
negligence and strict liability. Such indemnification in an agreement must be clear and conspicuous. As
a result, I generally use language such as the following in contracts to address environmental, which are
generally based on strict liability, and other strict liability claims:
STRICT LIABILITY. THE PROVISIONS OF THIS SECTION 16, AND SECTION 16(a)
AND (b) OF THIS LEASE RESPECTIVELY, SHALL INCLUDE CLAIMS FOR STRICT
LIABILITY WHETHER ARISING UNDER STATUTES, REGULATIONS, CODES,
ORDINANCES, RULES, COMMON LAW, OR OTHERWISE, INCLUDING, BUT NOT
LIMITED TO, THE FEDERAL COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION, AND LIABILITY ACT, AND ANY SIMILAR STATE STATUTES.
As a developer lawyer, it sometimes takes a bit of explanation to the landowner or his or her counsel why
this provision is necessary.
As stated above, I insist that the landowner indemnify the tenant for any environmental liabilities caused
by the landowner or existing on the property prior to the effective date of the lease.
It is important for the developer to draft an indemnity whereby the landowner indemnifies the tenant from
any inaccuracy of any representation and warranty by the landowner in the lease.
Developers should include provisions that state that the tenant is not liable for property damage or personal
injuries to the landowner or related persons attributable to risks of known or unknown dangers associated
with normal day-to-day operation of electrical generating facilities, such as noise, electromagnetic fields,
and glare.
Insurance provisions in solar leases generally require tenants to provide insurance. These provisions can
be very general or detailed. Some developers draft insurance sections that only state that the tenant will
provide insurance that is customary and reasonable for similarly situated companies performing the work
and to cover personal injury and property damage resulting directly from the site activities.
C. Landowner View: The landowner generally will ask for a broad indemnity from the
developer. This may be an indemnity for the landowner and related persons for any claims arising from
the tenant’s and its related persons’ ownership, operation, use or maintenance of the property, solar
facilities, and the easement areas or the Property. Coverage of these items are fairly typical in solar leases.

Solar projects do not typically present significant environmental risks. However, during construction
diesel, gasoline, or other fuels or chemicals may be brought onto or used at the property. As energy
storage becomes more prevalent, the battery chemistry may present risks to the property in addition to the
fire risk discussed above. For these reasons, the landowner should insist that an environmental indemnity
be provided by the tenant.
Care should be taken in reviewing indemnity provisions to ensure that other rights under the lease are not
inadvertently waived. For example, the indemnity and limitation of liability and other language in the
indemnity provision may be drafted, even if unintentionally, to potentially waive the right to file suit to
recover payment of rent.
Landowners, in contrast to the developer, may want to revise language that states that the tenant is not
liable for known and unknown dangers associated with operations of solar farms. This language if not
drafted carefully may limit most of landowner’s potential claims against the solar farm. Moreover, the
landlord may want an indemnity from the tenant for such claims by third parties. If a neighbor sues the
solar SPV and the landowner for operations of the solar farm, the landowner may want to insert an
indemnity for the landowner in the lease for such claims. The landowner will want the costs of litigation
to be borne by the tenant, even if the claims are frivolous or ultimately defeated.
As for insurance, landowners should insist on more specific insurance provisions. The insurance section
should state the types of insurance, such as commercial general liability policy, employee, workers
compensation, auto coverage, and specific per occurrence and aggregate amounts. A provision on
insurance ratings is wise as well. Limits on deductibles may be advisable. The landowner should be clear
that the insurance has to be robust and cover in particular risks to employees of the tenant and its
contractors. A solar farm generates electricity that can cause injury or death to persons working on the
live operating panels and other electrical equipment. Since the project lease term may last for 30 or more
years, periodic increases in the amounts of insurance should be included to adjust with inflation.
It may be advisable to ask that the landowner and related parties be added as additional insureds to the
tenant’s insurance policies, to the extent possible. Third parties cannot be added to workers compensation
policies. Landowner attorneys should think this through as it may be hard to sue the tenant if the
landowner is an additional insured in the tenant’s insurance policies.
Most developers will agree to expanded insurance provisions if they are reasonable.
Landowners should consider the requirement in a solar lease that they maintain insurance. Some
landowners do not maintain insurance for their property. This is probably not a wise practice, so
landowners should purchase insurance, particularly with the activities that will occur on the property. In
the event the provisions of the lease such as indemnities and tenant insurance do not fully cover the
landlord, insurance should be maintained by the landowner. Some developers will offer to pay up to a set
amount to the landowner for purchasing insurance. The attorneys for the parties should be able to agree
to a set of reasonable insurance requirements for both parties.
Landowners like developers should seek a limitation in the lease regarding their liability to the tenant.
Limits can be a set amount, up to the value of the property, or, which may be best, only up to the insurance
coverage maintained by the landowner. The landowner should avoid unlimited liability for the solar farm

or the death or injury of tenant employees, representatives, or contractor employees, or even trespassers
who might enter the property.
II. A Long Tall Glass of Water—Water Rights and Use
A. Issue: Solar photovoltaic panels must be cleaned periodically or dust or other materials
that build up on the panels will reduce light penetration and thus reduce the electricity generated by the
panels. Water is generally used to wash the panels on a periodic basis. The amount of water that must be
used depends on the size of the solar farm and the number of times per year the panels must be cleaned.
The number of times the panels must be cleaned depends on the geographic location and the nature of the
climate. If an area is more arid and dustier, it may need to be cleaned more often.
Water use issues while not generally very contentious may require negotiation to adjust the language of
the provision to meet the parties and the circumstances.
B. Developer View: A developer will seek often the right to use surface or groundwater at
or under the property for purposes related to the solar facility. The developer should include
requirements that the landlord execute and deliver to the tenant any documents necessary to
permit the use of water by the tenant.
C. Landowner View: The landowner may allow the developer to drill a water well and use
groundwater. The landowner should retain all water rights, subject to the agreement to allow use by the
tenant. The amount of water that may be used should be stated. The landowner may insist on the ability
to pump water from the well for its own use on any adjacent land retained by the landowner.
The costs for the well should be borne by the tenant, including costs and fees related to delivery and use
of the water, drilling, construction, installation, operation, and maintenance of any wells, pipelines,
utilities, or other facilities necessary to obtain, transport, treat, or use the water.
Sometimes, water may be available from a municipality or a water district. Landowners may insist that
developer connect to that system and use municipal water, rather than drilling wells and using
groundwater.
III. All Good Things Have to Come to an End? —Termination and Termination Fees
A. Issue: The termination of a solar lease can arise because of a termination by the tenant, in
rare cases by the landowner, or it may terminate because the term expires or is not extended. The more
debated termination rights are those of the landlord. Landowners will be concerned about the loss of
income from rent if the lease is terminated and seek compensation for such loss.
B. Developer View: Developers usually draft leases that allow them to terminate the lease at
its sole discretion or without cause at any time. The developer leases generally limit the ability of a
landowner to terminate the agreement. Some provide that the landowner may terminate the lease if
construction has not commenced after a specified time after the effective date.

C. Landowner View: Landowners typically dislike cancellation provisions because the
revenue from the solar project would cease if the tenant terminates the lease. Some landowners request
termination payments. Proposed termination payments compensate the landowner in part for the revenue
lost from cancellation of the lease. Termination fees may be proposed for any term, but generally they
apply to the operating term.
Some proposals provide for higher termination fees in the earlier years of the operating term and decline
every five or 10 years toward the end of the operating term.
Landlords may argue that termination may only occur during the operating term if the power purchase
agreement is terminated or the tenant cannot generate sufficient revenue to operate the project.
In some lease negotiations, landowners have argued that rent continue to be paid until the property has
been restored as required under the lease. Sometimes, the rent increases by a percentage during the
restoration period and increases more if more than a year is taken by the tenant to complete restoration.
IV. Before You Go—Restoration and Restoration Bonds; Transferring Solar Facility to Landowner in
Lieu of Restoration
A. Issue: At the end of the solar operation, most the tenant will remove the solar facility and
restore the land. Some leases provide for a restoration bond or other financial assurance to ensure funds
are available to complete restoration. Some states or counties, such as Texas, have enacted laws requiring
financial assurance for restoration. Legislation was passed in Texas for wind farms, but a similar bill for
solar farms did not pass.
While not applicable currently to solar projects, the implication is that it may become a standard that
parties may refer to in negotiating restoration and relevant financial assurance for solar farms.
House Bill 2845 signed into law by the Texas governor provides that decommissioning responsibilities
must be included in lease agreements. These responsibilities include removal of each wind turbine
generator, including towers, pad-mount transformers, and liquids, greases and other similar substances,
pad-mount transformers, and buried cable to a depth of at least three feet below the surface grade. At the
request of the landowner, the lease may require the tenant to remove any road constructed by the wind
developer on the property.
In addition, wind leases must require the developer to provide by the tenth anniversary of the commercial
operations date, adequate financial assurance conforming with the statute for removal and restoration.
Acceptable forms of financial assurance include a guaranty from a parent company with an investment
grade credit rating, a letter of credit, a bond, or any other form of financial assurance acceptable to the
landowner.
The estimated cost of removing the wind facility must be determined by an independent Texas licensed
third-party engineer. Financial assurance must equal the estimated amount of the cost of removal and
restoration that exceeds the salvage value of the facility, deducting any portion of the value of the wind
power facility pledged to secure outstanding loans on the wind facility.

The statute provides that any waiver of these requirements in a wind lease are void.
I have negotiated in solar leases similar provisions to what was passed by the Texas legislature for wind
farms. Thus, I believe the approach in the Texas wind statute will become the de facto standard for
restoration and financial assurance for solar farms even though legally it does not apply to solar farms or
solar leases.
B. Developer View: Removal of the solar farm and associated racking and underground
cables are frequently negotiated by developers and landowners. Restoration bonds are often requested by
landowners. The actual language of these provisions varies widely.
How much underground cable or other material installed for the solar farm must be removed is often
debated. Generally, anything installed to three feet below the surface is agreeable for removal. Some
landowners attempt to negotiate for deeper levels, but three feet is typical. This is the depth provided for
in the wind legislation.
The time at which financial assurance must be provided varies. Developers prefer a longer period after
the commencement of operations because of the cost to provide a bond. Some developers insist that a
bond not be required if the value of the solar facility is greater than the removal costs. Developers may
agree to pay for an independent valuation of the cost of removal and salvage value every five years.
C. Landowner View: Landowners argue for complete removal of material, racking,

foundations if any, underground cables, and other installations. Often, they will ask for a bond or other
financial assurance at the commencement of operations after construction is complete. Generally, a five
or 10-year period is agreed upon after the solar farm commences operations.
Landowners may want to take advantage of certain installations by the tenant. For example, fences
installed around a solar farm may have cost a substantial amount to install. Landowners may want the
tenant to leave some or all of the fencing or roads installed in place. Landowners and their counsel may
insert language allowing the landowner to select what fencing or roads may be left in place.
In several cases in which I have represented developers, the landowner or its counsel have inserted
language that the landowner may leave the solar farm in place at termination. These landowners want to
evaluate at termination whether the solar farm could continue to generate sufficient electricity to make
operating the solar farm a worthwhile venture. These provisions may be acceptable to the developer but
must be carefully drafted. One challenge to such provisions is that they may be void under applicable
law. The Texas wind decommissioning statute does not allow waiver of decommissioning requirements
and makes them legally void. Review of relevant law in each jurisdiction is necessary before negotiating
such provisions.
V. Conclusion
Solar leases are complicated contracts that undergird projects that may cost a hundred million dollars or
more to construct. These long and complex contracts are not familiar to most landowners. Landowners
may be used to farming or grazing contracts or “handshake deals” in the form oral arrangements. They

probably are not accustomed to reviewing the myriad arrangements, commitments, bargains, and legalistic
language in a solar lease.
Communicating and negotiating the specific language of clauses and issues discussed above is a
prerequisite to and a foundation of a successful solar project. Ensuring that the lease will satisfy investors
and lenders will be a first step toward a solar project that actually comes out of the ground and produces
the electricity and revenue to reward both the landlord and the tenant. It is thus beneficial to both parties
to negotiate a bankable lease.
Attempts to nurture a level of trust with the landowner and its counsel is important to more successful
negotiations. Less time may be needed to get through the negotiation of these long contracts.
I have found this true when representing developers by attempting to express understanding of the
landowners or their families concerns. When representing landowners, I explain I have mostly represented
developers and understand the terms of solar leases and the rationale behind the provisions included in
these leases.
Attorneys working in this space should attempt to learn the basis for the concerns and typical issues that
arise in these leases by the counterparties and work to develop a rapport with the other side. Each
negotiation is somewhat different, and the people involved are often different. Explanation and patience
are critical. As stated above, try to avoid a take it or leave it or this is just what has to be done attitude
and expressing that to the other side. This is particularly important for representatives of solar developers.
To be creative in revising language in the provisions of the solar lease that may find a compromise that
serves the legitimate concerns of both sides is perhaps more art than science—but a key element in
achieving a successful negotiation and establishing a good working, long-term relationship.

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Negotiating Solar Leases - Perspectives of Developers and Landonwers 01.29.2020

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NEGOTIATING SOLAR LEASES – ISSUES FOR DEVELOPERS AND LANDOWNERS

The University of Texas School of Law

IV. Show Me the Money—Rent, Royalties, and Other Payments ............................................................... 7

V. As Good as it Gets—Most Favored Nations Clause .................................................................................. 9

VI. Where Is It Going to Be? —Defining the Area to Be Leased ................................................................ 9

VIII. Storing It Up--Energy Storage ............................................................................................................ 11

IX. To and Fro--Specific Easements ......................................................................................................... 12

X. How Long Will It Last? —The Lease Term ............................................................................................ 13

XI. Taking It to the Bank—Lender and Tax Equity Issues ...................................................................... 15

XII. Mineral Interests and Protections for Solar Farms ............................................................................ 17

XIII. Who Is up Next? —Assignment .......................................................................................................... 18

XIV. What Could Go Wrong? —Default and Remedies ............................................................................. 19

XVI. Got You Covered—Indemnities and Insurance .................................................................................. 21

II. Beyond the Law: Building Trust between the Parties

NEGOTIATING SOLAR LEASES 1

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D. Attempting to Understand the Other Party

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IV. Show Me the Money—Rent, Royalties, and Other Payments

An “escalator” is frequently discussed. An escalator results in an increase at a fixed percentage in annual

NEGOTIATING SOLAR LEASES 7

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V. As Good as it Gets—Most Favored Nations Clause

VI. Where Is It Going to Be? —Defining the Area to Be Leased

NEGOTIATING SOLAR LEASES 9

VII. What Are You Going to Do? —Defining Permitted Uses

NEGOTIATING SOLAR LEASES 10

VIII. Storing It Up--Energy Storage

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IX. To and Fro--Specific Easements

Some easements a developer may pursue include:

3. To utilize, on a nonexclusive basis, any third-party access, utility, water,

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C. Landowner View: Landowners worry about easements undefined in terms of use,

X. How Long Will It Last? —The Lease Term

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XI. Taking It to the Bank—Lender and Tax Equity Issues

A. Issue: As discussed above in the beginning of this article, developing a relationship of

NEGOTIATING SOLAR LEASES 15

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XII. Mineral Interests and Protections for Solar Farms

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XIII. Who Is up Next? —Assignment

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XIV. What Could Go Wrong? —Default and Remedies

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Example provision proposed by one landowner attorney:

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XVI. Got You Covered—Indemnities and Insurance

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II. A Long Tall Glass of Water—Water Rights and Use

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C. Landowner View: Landowners argue for complete removal of material, racking,

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