A Closer Look at Wind Development Contracts
I would like to discuss a couple of the common “traps for the unwary” related to wind development contracts. First, it is important to know if you are dealing with an actual, experienced developer. There are companies that might be out to secure leases on a large portion of land with a good prospect for development, but who do not have the experience or means to actually develop it. Their plan is to sell the leases off to another company, which may be equally inexperienced. I have also seen a few leases from large companies that have set up limited liability companies in the state. Be aware that, although the parent company may be an experienced developer, they are intentionally separating these specific projects out from their larger holdings; and that is not done to benefit the landowners.
In this regard, it is important to review what is referred to as the “assignment clause.” Most of the leases will indicate that the company can assign or transfer the lease without your consent. It is important to either require your consent in writing to assign the lease, or to require any subsequent assignee (the company receiving the lease rights) to accept all responsibilities and obligations in the contract as a term of accepting an assignment.
Another major concern relates to construction liens. Usually the wind developer will hire numerous contractors for different aspects of the project, such as building roads and doing cement work. The problem arises when the developer refuses or is unable to pay one of these contractors. The contractor may file a construction lien because it was not paid, and that lien will attach to the property being improved. In other words, if a contractor does not get paid, they can file a lien on your land.
If you run a few Google searches, you’ll find stories about this happening, and the liens I have read about range from $700,000 to 32 million dollars. Obviously, most landowners will be in no position to pay this lien, and should not be responsible for it in the first place. A lien of this size on your property will obviously cause serious issues if and when you need to secure a loan or sell or encumber the land.
Any lease should include the basic provision that the company will not allow any liens to be placed on the property. Additionally, the developer should be required to “bond around” any lien which is placed on the property and is related to the wind project. This means that the developer will put up a bond or other undertaking in the contested amount owed to the contractor, and North Dakota allows for the lien to be released in this situation. Unfortunately, if a developer is insolvent and going bankrupt, even these provisions might not be sufficient to protect the landowner. There are a few other possible ways to address this issue, but landowners should be aware that there is always risk. Dealing with a reputable and experienced developer may minimize that risk, but building protective provisions into your lease may be the best way to insulate yourself from unwanted liability.
There is no “standard” wind lease, and they are full of traps for the unwary. I have never seen one, for example, that I would recommend a landowner sign without making significant changes.
(Posted by Derrick Braaten)