Law firm reviews land leases to wind-energy developers

December 6, 2009
| By Pete Daly |
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Tony Quarto said he and other attorneys at Smith Haughey Rice & Roegge in Grand Rapids saw that wind-farm developers are represented by attorneys, and utility companies that buy the electricity are represented by attorneys — "but nobody was representing the landowners."

So Quarto and Jon Siebers, another attorney from Smith Haughey, will give a free legal seminar on leasing land to wind-energy developers. The seminar is Dec. 14 at the Double JJ Ranch in Rothbury, and is open to the public.

They chose the Oceana County venue because commercial wind-energy farms are already being proposed in Oceana and Mason counties.

Quarto will focus on the legal ramifications of the leases and Siebers will explain state laws and local ordinances that are or will soon be impacting the placement of large, commercial-grade wind turbines.

Quarto said a landowner should be sure the proposed contract is in his or her best interest before signing. "Otherwise, the horse is already out of the barn. It's very difficult to make any changes to help the landowner," he said.

"Although the leverage is against the landowner once the contract is signed, it's still worth having these contracts reviewed by an attorney to see what you're stuck with," added Siebers.

Quarto said he believes many landowners have signed a wind-development contract without an attorney reviewing it first, adding that the contracts typically are "extraordinarily complex."

Some of the major issues of which the landowner must be fully aware are:

  • What exactly will happen on the land? How much of the property can still be used for farming or some other use? Siebers noted that in addition to the actual land that a turbine is situated on, the developers need access roads to the turbines and right-of-ways for the underground transmission lines leading away from the turbines. Many farms have underground tiling to drain high water tables in some fields; an underground power line may interfere with those drains.

  • How long will the property be tied up? When does the contract expire? "We've seen some that have no time limits," said Quarto. "In other words, the landowner is tying up his or her land for an unlimited time."

  • How much will the landowner be paid and how?

  • What is the landowner’s liability if the wind developer's equipment injures someone or damages property? What if a neighbor files suit against the landowner, claiming the wind turbine is a nuisance? Who pays the legal bills? "Nuisance lawsuits," said Quarto, are "the coming thing."

  • Who is responsible for decommissioning a meteorological tower or a turbine when it is no longer in use? Quarto said he is aware of one report indicating that taking down and removing a large, utility company-grade wind turbine can cost as much as $85,000. He said the best defense for a landowner is the posting of a removal bond by the developer, which assures that the landowner will not have to pay the decommission cost if the development company goes out of business.

Leases for wind-farm sites go in phases, said Quarto. The first is the evaluation or option phase, which entails a separate lease usually lasting from two to five years. During that time, the developer studies the wind conditions there, and may erect a meteorological (or "met") tower on the site or a nearby site. An option lease doesn't mean the developer is definitely going to put up wind turbines, however. If the developer does decide to actually erect wind turbines on optioned property, that begins the second phase, requiring another contract for the long-term lease.

Quarto said the landowner will be paid for the option lease, "but not very much."

How much the landowner might be paid for a long-term lease — with large turbines actually generating electricity — is one of the great variables in wind-rights leasing. Quarto said he has read that it typically ranges from $3,000 to $5,000 per year per turbine, although he has heard of one wind farm supposedly paying the landowners $8,000 per turbine, "but due to the confidentiality agreements, you have to take that with a grain of salt."

Some contracts prepared by developers include confidentiality agreements that prohibit the landowner from revealing the terms of the contract with anyone. That means no sharing notes with the neighbor on how much he is being paid for his lease.

The experience of two West Michigan families who have already signed contracts with wind-farm developers shows how the situations can vary.

Dick Shephard, a farmer near Sparta, was offered lease contracts by both Iberdrola Renewables of Spain, and Heritage Sustainable Energy of Traverse City.

"To begin with, Iberdrola said, “Take this to your attorney and have them look it over,'" said Shephard. The company also said it would cover those legal expenses for him, "so I figured, what have I got to lose?" he said.

Shephard said he took the contract to Cunningham Dalman in Holland, where an attorney pointed out that the contract for long-term leasing of sites for turbines included a clause that permitted Iberdrola to assign those rights "to anyone in the world if they want to. I kind of like to have a little bit of a say in who’s leasing my property," said Shephard.

"Theoretically, the Arabs could come over here and buy those leases up so there wouldn't be any wind-power development," said Shephard, who is a supporter of wind-generated electricity.

Shephard said Iberdrola would not remove that reassignment clause from the contract, "so therefore I didn't lease very much" to that company. He added, however, that he had agreed to let them put up two test towers on a five-year option contract.

Shephard said he told Heritage that Iberdrola was willing to pay his legal fee to have its contract reviewed, so Heritage said it would do the same, and it did. In the Heritage case, however, the company did accept the recommendation from Shephard's attorney on amendments to the contract.

Jan and Harland Reister, who live on a farm a couple of miles northeast of Conklin, were approached in February 2008 by a representative of Iberdrola. The company ended up putting up a met tower, which has now been up a year. Jan Reister said she and her husband agreed to allow a met tower for three years.

Did they have an attorney look at their contract? "No, we really haven't — yet," she said.

Both the Reisters and Shephards have confidentiality agreements in their contracts that preclude them from revealing what they are paid for their leases.

The Smith Haughey seminar, which takes place from 7-8 p.m. at Double JJ’s Frontier Building, 5900 S. Water Road in Rothbury, is free but people interested in attending are asked to register in advance by calling (616) 458-1332, or sending an e-mail to events@shrr.com

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