Caution urged when leasing farmland for renewable energy
Categories: News
Zoe Smith, Head of Commercial Property at ORJ, explores the legal considerations around selling or leasing farmland for renewable energy projects
If you own farmland in the UK, selling or leasing part of the land for renewable energy can be an effective way to raise cash and increase income. After all, rental yields per acre for a solar farm far exceed agricultural returns – but careful legal consideration is required.
Many under pressure farmers are selling or leasing their land for renewable energy projects as the Government’s drive towards net zero gathers pace. Farmland, depending on geography and layout, is often ideal for solar farms or wind turbines. Leasing land for renewables can help farmers diversify and create a new index-linked income stream, while boosting green credentials and having a positive environmental impact. However, integrating commercial renewable energy into an agricultural business can create complex legal issues and should not be entered into lightly. The potential problems are listed below.
Land use and property rights
Land leasing agreements will be required when farmers agree to host installations such as solar panels or wind turbines. These agreements will include the duration of the lease, rental payments, maintenance responsibilities and decommissioning requirements.
Energy developers will often be experienced in drafting these agreements – and farmers must make sure their interests are protected. Most agreements last for around 30 years, so farmers must be certain their day-to-day operations will not be compromised.
Capital gains tax and inheritance tax considerations tied to the sale or lease of farmland must also be considered, while selling a portion of land for a solar farm could affect eligibility for agricultural tax reliefs or subsidies.
Easements and Access Rights
It’s common for easements and/or rights of way to be created for renewable energy projects to proceed. This is to allow for construction, maintenance and connection to the grid. These easements may restrict access to parts of the farm so, before signing on the dotted line, it’s essential to ensure farming activities can continue. Disputes can be costly and time-consuming.
Agricultural Tenancies complications
Renewable energy projects can complicate existing agreements for tenant farmers. This is because the terms of tenancy agreements may need to be amended for the infrastructure to be added – and the landlord will be due a portion of the income.
Renewable energy projects also require planning permission, which can take several months. The visual impact of the scheme will need to be considered, and environmental regulations must be adhered to. Mistakes involving environmental rules can lead to hefty penalties.
Furthermore, The National Planning Policy Framework (NPPF) focusses heavily on the need to protect agricultural land and legal disputes are possible if it is considered that food security is being threatened.
Selling or leasing farmland can be highly lucrative, producing guaranteed income over a long period of time. However, serious consideration should be given to ensure time-consuming disputes do not crop up further down the line, potentially affecting your daily operations.
At ORJ, we have been involved in agricultural property matters for more than 40 years. You can trust
in our experts to deliver honest, first-class advice every step of the way.