Welcome to the regular column from Burnetts Solicitors LLP, in which we are covering a variety of topical issues across all legal sectors. In this month's column, Richard Miller, our Chairman and a partner in our Agribusiness Team discusses the growing impact of solar installations on agricultural land.
In the last few years, there has been growing interest in using agricultural land for solar installations. There is a significant opportunity to produce large amounts of solar energy on farmland and it can be a good way for farmers to generate income from their land. It can help towards diversifying revenue and increasing farm profitability.
However, before embarking on a scheme to allow a solar farm to be installed on agricultural land, there are a number of issues which need to be considered. In addition to obtaining legal advice, anyone considering a scheme will also need to take advice from their accountant and a land agent and valuer. One of the other important considerations is obtaining consent from any bank (or other funder) which has a charge over the land and dealing with any issues which need to be addressed as a condition of the lender giving their consent.
The documentation under which the solar farm will be leased to the solar operator needs to be reviewed very carefully and this should be by a lawyer who has expertise in solar schemes. Very often, the documentation seeks to impose restrictions on the remainder of the agricultural land owned by the farmer. The farmer needs to ensure that the remaining farm continues to be viable, both in terms of value as security to a lender and in terms of practicability of accessing the remaining farmland once the area leased to the solar operator becomes off-limits.
Some of the issues which we see regularly involve the solar operator wanting to gain unnecessary or impractical rights of way over the remaining farmland and wanting to impose onerous restrictive covenants which seek to prevent the farmer from operating the remaining farm in certain ways or preventing him from signing up to any other renewables schemes on the remainder of his land.
Another common issue is that solar operators sometimes agree and sign an option to set up a solar installation on land, but do not really intend to actively develop it. This effectively ensures that no-one else can develop that land as a solar farm and this protects the value of other solar installations which the solar operator has in the geographical area. Any options which are granted by agricultural landowners should therefore insist that the development is commenced within a set period of time.
One of the main tax considerations revolves around inheritance tax and the loss of Agricultural Property Relief (“APR”). The inheritance tax rules in England mean that (with some exceptions), active farms can be transferred to the next generation, on the death of a farmer, without any inheritance tax being paid. However, if a solar installation is placed on the land, then it moves from being agricultural land to commercial land and the APR is lost, meaning that inheritance tax will potentially become payable. This is obviously something which needs detailed advice before signing up to a solar scheme.
Perhaps the biggest issues surrounds reinstatement of the land when the lease to the solar operator comes to an end. There could be a significant cost in connection with the removal of the solar panels and installation and reinstatement of the land. Many of the solar operators will set up an SPV (special purpose vehicle) to operate the solar farm and it could have no (or very limited) financial resources. It is therefore important to obtain a bond, insurance policy or a guarantee (from a financially sound entity connected with the operator SPV), which will pay out if the SPV defaults on its obligations to reinstate the land. This ensures that the costs of reinstatement are met in full and that the land can be returned to agricultural use.
There are many good reasons for agricultural landowners to consider leasing part of their land for the development of solar installations, but also many potential pitfalls, so it is vital that expert advice is obtained at the outset of any proposed scheme.
If you would like to discuss any of these issues, please contact Richard Miller on 01228 552296 or rm@burnetts.co.uk