Renewable Energy Projects - Landowners, Beware of Contract Landmines

Illinois appears to be undergoing a resurgence in renewable energy projects, in the form of wind farms and now solar farms.    It's only a month into 2018, and McLean County, Illinois has had several such projects in the news, from at least three different energy companies (both wind and solar).  The Bloomington Pantagraph newspaper calls it a "renewable energy boom."  The news has primarily been about local government land use hearings, at which evidence is heard regarding the effects and economic benefits of such projects.  There's some opposition being raised for various reasons, with the economic development of the projects and the big picture benefits of renewable energy raised as supporting arguments.  I'm not here to debate all that.

These projects can be critical to landowner farmers and their families as a revenue stream that is not tied to the ups and downs of agricultural markets, but also can be realized without having to give up farming the land.  In some cases, such a revenue stream could be a deciding factor in whether family-owned farmground can stay in the family. The landowner may get a signing bonus payment upon signing a contract with the renewable company, routine, regular payments over time as compensation for keeping the land under contract but before any project is built, and then if and when the project begins, increased compensation going forward.

The actual contracts typically have two parts - a lease and an easement, and are lengthy forms devised by each company.  I have reviewed several from multiple energy companies, and provided feedback to landowner clients highlighting key provisions and recommending potential changes to consider negotiating.  Depending on the energy company and the project, sometimes these companies are more willing to negotiate terms than others.  At a minimum, even if no changes are made and the landowner chooses to sign the deal in consideration of the economic benefits, I believe it's important to help the landowners to consider and to understand what they are signing, to avoid unpleasant surprises.   Here are a few provisions that I've commonly found in such contracts, that are not always understood by landowners.

1. Read the Definitions!  Sometimes a contract will have a separate section called "definitions," and sometimes the definitions of terms (look for capitalized words) are disbursed throughout the contract.  They typically are not exciting to read, but are critical to understanding the impact of the substantive parts of the contract that contain the defined words.  For example, in at least one example I've seen, landowner compensation amounts relate to whether it is the "development term" or the "operational term," with the development term being basically from contract signing until whenever the energy company decides to start the project.  In one example, the development term ends upon "commencing construction."  That definition is critical to determining payment to the landowner.
2. Force Majeure matters!  "Force Majeure" is a standard (boring) contract provision, that basically identifies under what uncontrollable circumstances might a party be excused from performing its contractual obligations.  Typical examples of this would be a tornado, a war, etc. But sometimes contract drafters will write this as broadly as possible, such as "anything outside of our control."  In context here, such a broad provision might be used as an excuse to continue to keep a landowner's property under contract longer and avoid triggering a potential payment increase that would otherwise be required.  
3. Pay Attention to Deadlines and Notice Requirements!  How many days does the energy company get to tell you before they have to do something?  How many days does the landowner get?  If the energy company gets 30 and the landowner gets 5 days, consider asking for a more equitable revision.  
4. Be aware of lien provisions.  I'll talk more about this in a subsequent post from the contractor perspective, but for landowners, be aware that the document may specify contractors are working on personal property (the towers, equipment, foundations, etc.) rather than real property, and hence limit or eliminate their lien rights.  If you're a landowner, that may sound like a good thing.   But now consider whether the contractor working on your property is aware of that, and what might happen if they are not paid for their work. Particularly in a rural community in which you perhaps know folks who might be hired by the renewable energy company's general contractor to work on the project, if that general contractor reneges on paying the local subcontractor, it's important for you to know not only your own rights and responsibilities, but to have an idea of the impact on that subcontractor.
5. Red flags for one-sided clauses.  I recently reviewed one particular energy company form contract that had periodically inserted throughout the document the phrase "for the avoidance of doubt."  When you read something like, "For the avoidance of doubt,..." pay close attention to the ... wording that follows that phrase!  It may signal that the following wording is so particularly one-sided in favor of the drafter (the energy company) and against the other party (the landowner) that it requires specifically pointing out to future readers that the parties did in fact actually voluntarily choose to agree to this one-sided provision.  

These are just a few of issues I have found when reviewing renewable energy leases and easement contracts for agricultural landowners.  If you or your family member is considering one of these contracts, consider having it reviewed by an attorney who is familiar with them and who can at least help you to understand the agreement, and potentially to seek changes before signing.

Nate Hinch is an attorney and partner at the law firm of Mueller, Reece & Hinch, LLC.  He has offices at 404 N. Hershey Road, Suite C, Bloomington, IL 61704, and 809 Detweiller Drive, Peoria, IL 61615, and can be reached by phone at (309) 827-4055 and email at nhinch@mrh-law.com.