I marvel how many South Dakota landowners sign a wind turbine agreement or an oil and gas lease without the benefit of good counsel. I have seen the end product. It is not pretty. Though we are taught about the seven deadly sins of this world also called the seven cardinal sins or capital sins, yet a wind turbine agreement may contain an even greater smorgasbord of “contract sins” all of which should be discovered, remedied and purged by any negotiating landowner before entering into a long term land use agreement. I will in this opinion piece visit a few contract issues. Let us first however examine a difference one occasionally finds between a North Dakota landowner and a South Dakota landowner. I am reminded of an old Aberdeen lawyer friend who has now passed away. He once said, “In North Dakota they spend money to make money and they spend money to save money, but in South Dakota they just don’t spend money.” Consider that many wind turbine agreements are private contracts in which the parties have an unequal bargaining position. To be involved with one is not the time to practice parsimony.
A particular contract term used by wind farm developers is the confidentiality agreement. This stratagem requires landowners sign a confidentiality agreement often before even seeing a form lease. The clause attempts to give a developer an advantage over landowners by prohibiting the sharing of information among landowners. Such a “gag” provision is also found in a final executed wind lease in order to protect the contract terms from disclosure. A confidentiality clause makes it a bit more challenging to determine what the regional “market” payment terms really are for a given project. And in turn the clause hinders a landowner’s ability to knowingly negotiate terms which are fair for a particular project in that particular market. The absence of market knowledge gives a competitive advantage to project developers. When I consult ag land appraisers to discuss regional wind turbine payment terms I usually find these experts bereft of much information on the subject. While there are methods for learning what a fair payment term should be, the methods are a bit more expensive than what might be found in an open and transparent market.
I will list some important terms found in a wind turbine agreement. This is a sobering list, and should motivate the landowner to seek the exact parameters for each term. Common agreements contain: a construction and land use option all in favor of the developer; an access easement to cross and use one’s property; the right to construct roads; the right to construct large turbines on one’s land; the right to construct underground and above-ground transmission lines and substations; and terms that bind on one’s heirs or any subsequent purchasers of the land. As in a courtship, pretty pictures painted, verbal promises and solid verbal commitments between the landowner and developer mean nothing once an agreement is signed.
Some wind turbine agreements are called easements, some leases, some something else. It matters not. These babies are a binding, long-term land contract. Or, as young people say, a wind turbine agreement is a land contract with benefits. Be not dissuaded by the good money offered. While an agreement often presents itself as if it were a lease - an agreement is considerably more than a lease. A wind turbine agreement is a binding commitment of the landowner allowing the developer the right to broad use of the landowner’s property. The “right-to-use” language often has ambiguous or liberal terms subject to interpretation. I suggest one leave as little to interpretation as possible. A wind turbine agreement is a business marriage with all its serious consequences. Let me provide an example of language found in an agreement: ‘The final decision concerning the placement of any wind turbine equipment remains in the sole discretion of the developer.’ This term sets no limits as to duration, quantity or type of equipment. The term is unrestricted. A written wind energy agreement is the very Constitution of the land use relationship. It has many other consequences not here discussed including a legal liability issue and several tax questions. If in fact a landowner is interested in entering into a wind turbine agreement in the first place, a tax and legal analysis is essential. Ben Franklin said that an investment in knowledge pays the best interest. A landowner should invest money to make money and to protect property.
David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law. Mr. Ganje wishes to thank his law clerk Jordan Vogel for his assistance.