This is the second in a series of three posts outlining some of the major issues relevant to the negotiation of wind project leases or easements and providing general recommendations for developers.

Use of the Property by Developer

As mentioned in our previous post, an easement must provide the specific purposes for which it is granted.  Typical developer rights specified in the easement relate to the developer’s determination of the feasibility of the project (including meteorological and soil testing) and to the construction, maintenance and operation of project infrastructure (including turbines, overhead and underground transmission lines, power generation facilities, meteorological towers and roads).  The easement should also include a catchall provision granting the developer any non-enumerated rights that are reasonably necessary, useful or appropriate to give effect to any of the specified rights.   

An important obligation relating to the developer’s use of the property is its duty to remove project infrastructure upon the termination of the easement and to restore the property to its original condition.  Although this provision may appear to burden the developer, it is essential in securing tax credits for the project.  The IRS has taken the position that such credits will not be available if the developer and the landowner form a partnership or if the landowner owns an interest in the project.  The developer’s dismantling obligation helps establish that no such impermissible relationship exists.

Use of the Property by Landowner

Many wind easements provide for the landowner’s right to farm and/or hunt on the property.  The developer will typically agree to compensate the landowner for any displaced crops or livestock and not to unreasonably interfere with the landowner’s agricultural activities.  Developers should consult with environmental counsel about any possible environmental liability under CERCLA and similar state legislation in connection with the potential contamination of the site as a result of the landowner’s past and ongoing agricultural activities.  The likelihood of such liability generally hinges on the scope of the easement-holder’s rights.  Thus, it is important that the easement be reviewed by an experienced environmental lawyer. 

The landowner should, in turn, be required not to interfere with the developer’s wind project.  In particular, the landowner should agree not to plant trees or construct buildings and other structures that would affect the speed or direction of the wind. 

Indemnification

The landowner’s right to farm and/or hunt on the property creates two important risks for the developer.  First, the release of hazardous materials in connection with farming may expose the developer to environmental liability, as discussed above, or otherwise interfere with the operation of the wind project.  Second, the landowner’s invitees and licensees present on the property may also interfere with the project.  The developer should ensure that it is adequately indemnified by the landowner against both types of risks, among other things.  The landowner will likely insist on a cross-indemnification provision that will protect it from similar risks created by the developer.

For further information about this topic, please contact Akin Gump.