Issues When Leasing Your Property to a Solar Panel Company in Texas

Solar Farm Land Leases in Texas

If you own land in Texas, you may be approached by a solar panel company wanting to lease all or a part of your property to install a “solar panel farm,” basically, acres and acres of electricity-generating solar panels. A typical solar panel farm requires hundreds of acres of empty land in a location that receives sunlight for a substantial number of days in a year. Many parts of Texas fit the bill, and so a private company may solicit a Texas landowner with a proposal to lease their land for a solar panel farm. As this type of energy is relatively new and the associated technology is still evolving, so is the law governing these transactions - as well as the need for Texas landowners to be knowledgeable of potential issues in leasing their land for this purpose.

Land for solar panel farms is typically leased in two stages. First, the landowner and the solar panel company will execute an initial lease with a term of several years, often as many as seven or eight. During this initial lease, the solar panel company will have the option, but not the obligation, to extend the lease for a much longer secondary term. Often, the lease agreement is structured so the solar panel company can execute the option at any point in the term of the initial lease. This option period provides for annual payments to the landowner in exchange for the solar panel company’s right to “lock up” the land. During the option period, the solar panel company is doing its due diligence, confirming the landowner’s title and the absence of liens on the property, securing financing, and determining whether the land will receive enough sunlight for the solar panel farm to be profitable.

If the solar panel company completes its due diligence and thinks the land will be a good location for its solar panels, the company will exercise its option and enter into a new lease with the property owner for a term that could be as long as 25 years or longer. This new lease typically provides payments per acre (often including a percentage increase per year) plus potentially smaller land damages per acre. These payments are generally set by the terms of the lease and do not vary based on the amount of sunlight collected in a given year.

Before signing a solar lease or option agreement, a property owner should be aware of several legal issues involving solar panel leases in Texas. First, the Texas Supreme Court has not yet ruled whether the sunlight that naturally falls upon a piece of land is part of its surface estate or its mineral estate. Most scholars predict that the right to harvest sunlight would be ruled a surface right, which would put solar interests subservient to mineral interests in Texas. Therefore, if the property owner has contracted for any mineral production, a solar panel lease may not be compatible with the activity of any company extracting minerals. Additionally, rural Texas properties often have agriculture exemptions in place to lower property taxes. Harvesting sunlight does not constitute agriculture under Texas law, and the presence of the solar panels may interfere with the landowner's ability to grow crops or raise animals as may be necessary to maintain the exemption.

The property owner should also carefully examine the solar lease to ensure that they understand each party’s obligations and to negotiate any desired modifications to the lease. For example, solar panel leases often contain confidentiality provisions that prohibit the disclosure of the terms of the lease, including the amount of the landowner’s annual payments and the length of the lease term. A landowner who fails to read their lease may run afoul of these provisions and commit a breach without realizing it. Landowners should also be cognizant that the term of a solar panel lease is often several decades long, making it even more important for a property owner considering entering such an agreement to satisfy themselves before signing that the terms are fair.

If you have been approached by a solar panel company about leasing your property in Texas, an experienced real estate attorney can help you identify any potential issues in the lease agreement, answer your questions, and allow you to act on an informed basis with respect to your land — and the sunlight that shines upon it.

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