court would hold that solar rightsbelong to the surface owner, makingthat person the one who has the rightto enter into and negotiate solar leaseagreements. Of course, this can bemodified by agreement between theparties. For example, assume that Adamowns both the surface and mineral rightsof a piece of land. Adam enters into anagreement to sell the land to Beth, buthe reserves solar leasing rights. If thathappened, even though Beth would ownthe surface of the land, Adam, ratherthan Beth, would own the solar rights.

Rights of mineral owners. Because themineral estate is dominant in Texas,

the mineral owner has the right to useas much of the surface estate as is rea-sonably necessary to produce oil andgas. This includes building drill pads,preparing roads, installing pipelines, anddrilling injection wells. The TexasSupreme Court recently held the samewith respect to severed ground waterestates. This poses a major concern forsolar lessees looking to put in a solarfacility on the same land. Solar compa-nies will likely carefully analyze thestatus of the mineral and groundwaterestates including how many ownershipinterests exist and whether a leaseagreement is currently in place. Somesolar companies refuse to enter a leaseunless the surface owner owns or con-trols the leasing of all minerals as well.Landowners should take care not toagree to serve as a type of “middleman” or negotiator between solar andmineral lessees, particularly if theyhave no relationship with the mineralowners.

Solar leases are usually not short induration. According to a Texas attorneywho frequently represents solar companiesin lease agreement negotiations, theseagreements typically last between 20and 30 years. They tie up property for asignificant period of time, so it is impor-tant to carefully evaluate the terms.

Royalties are not common in solar leases.Unlike oil and gas lease agreements, itis uncommon for a solar lease agreementto set forth a royalty as the paymentmethod. Instead, annual payment termsare usually defined in dollars per acre.Commonly, the price offered is lowerin the development phase and higherduring the operations phase. This makessense because there should be incomegenerated during the operations period,while the same is not true during thedevelopment phase. Because rental ratesare usually lower in the developmentphase, a landowner has reason to wantthat phase to be as short as possible in thelease agreement. Lease rates, not surpris-ingly, vary greatly based on a number offactors, chief among those being the valueof the land and proximity to the grid.

F

CLIENT PAGE

198 Texas Bar Journal • March 2017 texasbar.com

This content is for informational purposes only. Consult an attorney regarding specific legal questions.

Here Comes the Sun Key considerations for landowners considering solar leases.BY TIFFANY DOWELL LASHMET

For Texas landowners who have beencontacted by companies seeking to leaseagricultural land for solar projects,there is surprisingly little informationavailable to assist with weighing thepros and cons of entering into such anagreement. This article outlines some ofthe key considerations when negotiating alease. As always, landowners should con-sult an experienced attorney to review anylease agreement before it is signed.

To which estate does the sun belong?Interestingly, the Texas Supreme Courthas never ruled on whether the sun ispart of the surface or mineral estate.Most legal scholars assume that the

texasbar.com/tbj Vol. 80, No. 3 • Texas Bar Journal 199

CLIENT PAGE

Solar leases will likely prevent anyother use of the property. All of us inTexas have likely driven by a piece ofproperty and seen a tractor farmingaround oil pump jacks or cattle grazingbeneath wind turbines. Because of howoil, gas, and wind production occurs, itis quite possible for the surface ownerto make agricultural uses of the propertyeven during the time while the oil, gas,or wind lease exists. The same is oftennot true for solar leases. Often, a solarfarm requires numerous continuouslyplaced panels that would prevent otheruses of the surface of the land. Landown-ers evaluating solar leases should usuallyassume the lease payment will be the onlyincome for the property and negotiateaccordingly.

A solar project could impact specialtax use valuation eligibility. In Texas,many rural landowners take advantageof the special tax valuation available

for agriculture or open space land. If alandowner meets the criteria, the specialuse valuation allows the property taxesto be calculated based on a percentageof its productive capacity versus thefair market value of the land, which isusually much greater. A solar projectcould impact the ability for property toqualify for this special use valuation. Ifthat is the case, a host of issues arise,including a rollback period where thelandowner may owe the differencebetween the normal tax value and themodified value paid. Importantly, evenafter the solar project has left the land,it could be years before the propertycan qualify for agricultural or openspace valuation again.

Landowners should visit with theirlocal appraisal district to determine howsolar projects are treated with regard tospecial use valuation. It is important thatlandowners include a term in the solarlease agreement whereby the solar

company covers any additional realproperty taxes owed as a result of theproject and that the company pays forany personal property taxes on thesolar equipment. TBJ

This article has been edited and reprinted withpermission of the author.

TIFFANY DOWELL LASHMETis an assistant professor and extensionagricultural law specialist with TexasA&M Agrilife Extension Service. She holdsa bachelor’s degree in agribusiness farmand ranch management from Oklahoma

State University and a J.D. from the University of NewMexico School of Law. She maintains the Texas AgriculturalLaw Blog at agrilife.org/texasaglaw.

Bring your game

The University of Alabama School of Law offers LL.M. programs in taxation and business transactions. Renowned professors and practitioners teach courses live from across the country. Earn your advanced degree and gain championship status.

Online ProgramsSchool of Law

OnlineLLM.ua.edu/tx

with an LL.M. in Tax or Business.