What is the difference between a lease and an option agreement from energy companies?

"I’ve been approached by an energy company about having a wind farm built on my land, but what is the difference between an option and a lease agreement?"

With renewable energy becoming more popular among homeowners across the UK, many farmers have been approached by energy companies in relation to building a wind farm on their land.

However, they may be unaware of the different types of agreements offered.

An option agreement sets out the energy company’s intention to develop the land into a wind farm and provides you with a time frame during which they have an ‘option’ to work on the land.  

During this time, they will be seeking planning permission to develop the wind farm, including any access ways, and the installation of any electrical cables and other equipment. In return for this you will receive an agreed fee and also legal expenses.

A lease agreement then covers the lifetime of the development and encompasses all the costs associated with the ongoing running of the site.

This will include any agreed payments by the energy company to the landowner, and any negotiated rent for the use of the site. You should contact a rural legal expert when negotiating rent as they can advise on the best options to maximise your return.

It is important to consider the long-term implications for your land and family when negotiating an agreement.

For example, if the option agreement is up to 10 years, any sale of this land or change in ownership during that period will have to be agreed upon by the energy company under the terms of the agreement.

As a result, it is vital to think ahead thoroughly about this type of agreement, as it is a significant commitment.

JCP’s Rural Practice team specialises in a wide range of legal services, whether you need legal assistance with succession planning, agricultural business, or expert advice on land use and environmental issues.

To discuss rural matters contact Rhys Evans on 02920 379 568 or email rhys.evans@jcpsolicitors.co.uk.

The question posed is based on a hypothetical situation.