Solar energy is one of the most abundant energy resources on earth. With Australia, and majority of the world, looking for alternative energy solutions, solar farms are becoming an attractive opportunity for solar farm developers. In June 2023 in New South Wales alone, 14 large-scale solar farms were already operational, with an additional 7 under construction.
The construction of a solar farm is, in our experience, often undertaken by a developer on a parcel of land owned by an unrelated third party. The developer approaches the landowner with a view to leasing the land (or part thereof) for use as a solar farm.
To secure a lease of the land, the developer will usually propose an option or an agreement for lease. An option agreement gives the developer (or its nominee) a right, but not the obligation, to enter into a lease over an identified parcel of the land at a predetermined rent for a predetermined time (the details of which are contained in the lease). The lease itself is annexed to the option agreement.
During the option period, the developer will undertake its necessary due diligence to liaise with stakeholders, understand feasibility of the solar farm and obtain all necessary approvals (such as consent from the local Council, the relevant Regional Planning Panel or the NSW Department of Planning, Industry and Environment). The landowner, during this period, is precluded from leasing the land to anyone other than the developer.
The option deed will generally include:
The developer will pay the landowner an option fee, in consideration of the landowner granting the option to lease to the developer. In the event the developer does not exercise its option to lease, the option fee is retained by the landowner.
On exercise of the option by the developer, the lease comes into effect.
It is imperative that legal advice be sought when a landowner is first approached with a proposal for part of their land to be used as a solar farm. The option agreement and the lease are negotiated at the same time. Apart from identified clauses, the lease will not be renegotiated at the time the option is exercised by the developer. The lease proposed will generally be a long-term lease, such as 20 years with two further options of 20 years each (effectively, a 60-year lease). Special consideration needs to be given as to how the terms of the lease will apply into the future and how these terms affect the ongoing use of the land by the landowner.
For a landowner, important considerations include:
For the developer, important considerations include:
A solar farm lease is a long-term commitment. It has plenty of identifiable benefits for both landowner and developer but can be fraught with risk if appropriate advice is not sought by either party. We preach it – but due diligence and preparation are keys to success.
This article was co-written by Koreen Partridge, Senior Associate.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.