Do you know your next of kin? A look at wind lease agreements
My discussion here will address your next of kin. For our purposes ‘next of kin’ is the party with whom a landowner on a wind farm operation has a contractual relationship. I focus on the relationship between landowner and operator regarding wind turbines placed, constructed and located on a landowner’s property. Why do I call it next of kin? The relationship between landowner and wind farm operator is intimate. The agreement between a landowner and a wind farm operator is an economic and legal marriage. More succinctly an economic and legal marriage to one’s next of kin in business.
Initial development companies who work on a prospective, new wind farm are often not the company which ends up managing or owning the operating wind farm. Development companies may put together wind projects, initiate development and then “flip” the project to another company or utility. In this scenario the landowner would be dealing with a whole new business entity once the wind farm is operating. Aside from certain federal and state regulations affecting wind farms, the landowner may only have the language of the lease or easement agreement to govern his relationship with the new next of kin.
A project developer may start a new wind project and hold ownership during at least the early stages of development. But things often change; that means, the parties to an agreement change. The change is usually on the ‘lessee’s side’ of the deal.
How does a wind farm development get started? With traveling marketers. Representatives of a wind farm developer are marketers. These marketers serve the development company. They approach landowners whose property looks appealing for possible development. Not only do they serve their bosses, but to landowners they serve up excitement and serve up the benefits of the new wind farm. The initial negotiations and conversations may not parley on the possibility of an assignment, sale or flip of the development company’s ownership rights. The wise landowner must plan for this contingency – the landowner may inherit new next of kin.
Here are a few things a buyer and seller of a wind farm consider. The cost of funding a project is significant, and current or new tax regulations play an important role for any developer as well as for a prospective buyer of the project. The sale or assignment of a wind farm operation is also subject to the typical risks of underperformance based on utility power purchase agreements which may turn off a new buyer. Potential changes in tax law affect business projections and can limit the list of possible buyers.
Let us consider the ownership status of a current state wind farm operation. Concerning a current windfarm, the South Dakota registered wind farm company named as the operating company is a business registered but not organized in South Dakota. It is organized as a business in another state. This South Dakota wind farm company is a wholly owned subsidiary of a second company, a parent company, registered in another western US state. This parent company is organized as a business in a state different than that in which it is registered. And the parent company has stated that the South Dakota company is owned and will be operated by the parent company.
Not all development companies are created equal. Some are good. Some are bad. Some don’t have the capital or expertise to complete a wind farm project. Some from the beginning anticipate selling all or a part of their fully-signed-up project. The reasons for selling or assigning projects are many. By my observation and experience at least half of new wind farm projects are eventually sold to a new operator. The landowner must seek and pay for good advice during the negotiations. A wind turbine agreement is a long-term legal relationship, not unlike the relationship one has with one’s relatives.
