Farm Progress

Evaluating easement, leasing offers

Company wants farmer to sign a long-term lease so it can install solar collectors on his land.

Erin Herbold-Swalwell

October 23, 2017

5 Min Read
CHECK IT OUT: If you are presented with an easement or a lease by a company affecting your property rights, it’s important to review the agreement and have your attorney do the same before signing anything.

This month, we received the following question from an Iowa landowner:

I’ve been contacted by a California company, seeking to build a “solar collector farm” on our farmland in Iowa. We received a letter stating that, after an initial review of our land, it is suitable for such an installation and asks us to enter into a long-term leasing agreement. A representative of the company says the company is interested in the location of our farm because it is next to a powerline that feeds into one of Iowa’s larger cities. Quite frankly, the offer seems too good to be true.

The company is willing to pay $800 per acre per year for the right to install these solar panels on at least 20 acres of my farm. It is hard not to consider such an offer since I currently cash-rent this ground for $200 per acre. What questions should I be asking the company representative? When should I share this letter with my attorney? What if the company runs into financial problems, declares bankruptcy and walks away from these solar installations? It seems to me they would be dependent on a government subsidy or tax credit to make the project work.

In past columns we’ve discussed evaluating lease and easement opportunities involving wind energy, crude oil pipelines and high-voltage transmission lines. It is a relatively recent development that companies are seeking easements and leases for solar (photovoltaic) projects in Iowa. Of course, many questions arise for landowners approached with leases and easements relating to these installations. 

Remember, a lease is really just a contract where the party owning land conveys a portion of land to another party to use for a specific time, usually for a specific periodic payment. An easement is a similar concept, but is a grant of a right given to another to use land you own. For instance, utility companies generally request easements for utility line installations.

Important questions you should ask

There are some questions you might want to ask that are specific to solar installations. For instance, is the use compatible with my farming operation and where will transmission lines be installed? What incentives (i.e., government subsidies) are available to these companies? In the event of financial distress, what will the company do to ensure that I am paid?

If you are presented with an easement by a company affecting your property rights, it’s very important to review the agreement and have your attorney do the same before signing anything. Below is a list, though not exhaustive, of other important questions to ask:

•  What is the term of the agreement? How many years? Are there options to renew after the initial term expires?

Is the agreement assignable? Can the company assign their rights to another company?

•  What is the payment and how is it structured?

Am I protected from liability as a landowner, if a catastrophic event occurs?

What access rights, and through what routes, does the company have? If the company damages my crops or compacts my soil, what does the agreement provide for compensation?

In the event of a legal dispute, is there a mandatory arbitration or mediation clause? Do I have to give up my right to a trial by jury?

Aside from solar projects, many landowners have been approached on other projects, such as high-voltage transmission lines planned in several areas of the state. Mid-American is in the process and has announced plans for additional wind turbine projects in the state of Iowa. On a smaller-scale, landowners are often approached by their county governments with easements or offers to purchase small portions of land for the improvement of highways, bridges or other infrastructure.

Whatever the project, asking the right questions and consulting with experts and your attorney is key to understanding the rights and responsibilities you may assume by entering into a long-term easement or lease arrangement.

Congressional tax reform efforts could impact farm families

A few months ago we discussed the issue of congressional tax reform efforts as they relate to Section 1031 exchanges. It appears that tax reform is now the top policy priority in Washington. Congressional leadership and President Donald Trump, after agreeing to a short-term deal with congressional Democrats to delay a debt ceiling vote until December, recently “cleared the deck” to enact tax reform in 2017. Tax reform is expected to proceed under a budget reconciliation process that allows a 50-plus-one simple majority vote in the Senate. As with prior legislative efforts relating to health care reform, it remains to be seen what the final result of tax reform efforts will be.

There is still talk in Washington that potential large-scale changes to Section 1031 exchanges are being considered in order to pay for the desired corporate tax rate cut. If you remember, Section 1031 of the Internal Revenue Code allows for the like-kind exchanges. For instance, Section 1031 allows farmers to exchange their equipment for new farm equipment and owe no tax on the exchange, or to sell less-productive farmland in exchange for a more productive parcel, and defer the capital gains tax on the transaction.

Some have asked how elimination of Section 1031 might affect Iowa farmers and landowners. In an Iowa survey, farm real estate agents found that a third to a half of land transactions would not occur if Section 1031 was not available to landowners due to the “tax lock” effect. The ability to use Section 1031 can be a very valuable tool for farm succession planning and the farm economy. Industry experts are encouraging constituents to reach out personally to their congressional representatives to encourage Congress to retain the current law.

Next month we will discuss end-of-year tax planning, tax reform efforts, including Federal Estate Tax issues, and the impact those efforts might or might not have on your farming operation.

Herbold-Swalwell is an attorney with Brick-Gentry PC in Des Moines. Contact her at [email protected].


About the Author(s)

Erin Herbold-Swalwell

Erin Herbold-Swalwell is an attorney with Wickham & Geadelmann PLLC.

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