Contracts

Farm Office Team on Zoom Webinar
By: Jeffrey K. Lewis, Wednesday, July 14th, 2021

"Farm Office Live" returns this summer as an opportunity for you to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis, and other related issues.  Targeted to farmers and agri-business stakeholders, our specialists digest the latest news and issues and present it in an easy-to-understand format.

The live broadcast is presented monthly.  In months where two shows are scheduled, one will be held in the morning and one in the evening.  Each session is recorded and posted on the OSU Extension Farm Office YouTube channel for later viewing.

Current Schedule:

July 23, 2021 10:00 - 11:30 am  December 17, 2021 10:00 - 11:30 am 
August 27, 2021 10:00 - 11:30 am  January 19, 2022 7:00 - 8:30 pm 
September 23, 2021 10:00 - 11:30 am  January 21, 2022 10:00 - 11:30 am 
October 13, 2021 7:00 - 8:30 pm  Februrary 16, 2022 7:00 - 8:30 pm 
October 15, 2021 10:00 - 11:30 am  February 18, 2022 10:00 - 11:30 am 
November 17, 2021 7:00 - 8:30 pm  March 16, 2022 7:00 - 8:30 pm 
November 19, 2021 10:00 - 11:30 am  March 18, 2022  10:00 - 11:30 am 
December 15, 2021 7:00 - 8:30 pm  April 20, 2022 7:00 - 8:30 pm 

Topics we will discuss in upcoming webinars include:

  • Coronavirus Food Assitance Program (CFAP) 
  • Legislative Proposals and Accompanying Tax Provisions
  • Outlook on Crop Input Costs and Profit Margins 
  • Outlook on Cropland Values and Cash Rents 
  • Tax Issues That May Impact Farm Businesses 
  • Legal Trends
  • Legislative Updates
  • Farm Business Management and Analysis
  • Farm Succession & Estate Planning
 

To register or to view a previous "Farm Office Live," please visit https://go.osu.edu/farmofficelive. You will receive a reminder with your personal link to join each month. 

The Farm Office is a one-stop shop for navigating the legal and economic challenges of agricultural production. For more information visit https://farmoffice.osu.edu or contact Julie Strawser at strawser.35@osu.edu or call 614.292.2433

Cover crop on Ohio farm
By: Peggy Kirk Hall, Wednesday, May 05th, 2021

There’s a lot of talk about carbon markets and agriculture these days.  While carbon markets aren’t new, recent proposals in Congress and announcements by the Biden administration are raising new interests in them.  Some companies are actively pursuing carbon trading agreements with farmers, further fueling the discussion in the agricultural community. 

As is common for any new opportunity, the talk on carbon markets may be tinged with a bit of skepticism and a lot of questions.  Do carbon sequestration practices have real potential as an agricultural commodity?  That’s a tough question and the answer isn’t yet clear.  There are answers for other questions, though, as well as resources that may be helpful for those considering carbon markets for the first time.  Here’s a sampling.

What is a carbon market?   A carbon market revolves around carbon credits generated by carbon reduction practices.  In the farm setting, a producer who either lowers the farm’s carbon emissions or captures carbon through “sequestration” practices can earn carbon credits.  Like other markets, a carbon market involves a transaction between a seller and a buyer.  The seller sells a carbon credit to a buyer who can use the carbon credit to offset or reduce its carbon emissions.

Do carbon markets already exist?  Yes, although they may be private markets with varying names occurring in different regions.  For example, Bayer Crop Sciences began its Carbon Initiative last year, paying producers for adopting carbon reduction practices that will help Bayer reach its goal of reducing its greenhouse gas emissions by 30% in 2030.  Indigo Ag began entering into long-term carbon agreements with producers in 2019, paying $15 per ton for carbon sequestration practices.  Food companies and agribusinesses including McDonald’s, Cargill, and General Mills formed the Ecosystem Services Market Consortium, which will fully open its private carbon market in 2022.

Are legal agreements involved?  Yes.  Using a written agreement is a common practice in carbon market transactions, but the agreements can vary from market to market.  Provisions might address acceptable practices, calculating and verifying carbon reductions including third-party verification, sharing data and records, pricing, costs of practices, minimum acreage, and contract period.  As with other legal contracts, reviewing a carbon agreement with an attorney is a wise decision.  Watch for more details about carbon agreements as we share our analysis of them in future blog posts.

What is President Biden considering for carbon markets?  The Biden administration has expressed interest in developing a federal carbon bank that would pay producers and foresters for carbon reduction practices.  The USDA would administer the bank with funding from the Commodity Credit Corporation.  Rumors are that the bank would begin with at least $1 billion to purchase carbon credits from producers for $20 per ton.  The proposal is one of several ideas for the USDA outlined in the administration’s Climate 21 Project.

What is Congress proposing for carbon markets?  The bipartisan Growing Climate Solutions Act would require USDA to assess the market for carbon credits, establish a third-party verifier certification program overseen by an advisory council, establish an online website with information for producers, and regularly report to Congress on market performance, challenges for producers, and barriers to market entry.  An initial $4.1 million program allocation would be supplemented with $1 million per year for the next five years.  The Senate Agriculture, Nutrition and Forestry Committee has already passed the bill.  The Rural Forest Markets Act, also a bipartisan bill, would help small-scale private forest landowners by guaranteeing financing for markets for forest carbon reduction practices.

Is there opposition to carbon markets?  Yes, and skepticism also.  For example, a recent letter from dozens of organizations urged Congress to “oppose carbon offset scams like the Growing Climate Solutions Act” and argued that agricultural offsets are ineffective, incompatible with sustainable agriculture, may further consolidate agriculture and will increase hazardous pollution, especially in environmental justice communities.  The Institute for Agriculture & Trade Policy also criticizes carbon markets, claiming that emission credit prices are too low and volatile, leakages and offsets can lead to accountability and fraud issues, measurement tools are inadequate, soil carbon storage is impermanent, and the markets undermine more effective and holistic practices.  Almost half of the farmers in the 2020 Iowa Farm and Rural Life Poll were uncertain about earning money for carbon credits while 17% said carbon markets should not be developed.

To learn more about carbon markets, drop into an upcoming webinar by our partner, the National Agricultural Law Center.  “Considering Carbon:  The Evolution and Operation of Carbon Markets” on May 19, 2021 at Noon will feature Chandler Van Voorhis, a leading expert in conservation and ecological markets.  The Center also has a recording of last month’s webinar on “Opportunities and Challenges Agriculture Faces in the Climate Debate,” featuring Andrew Walmsley, Director of Congressional Relations and Shelby Swain Myers, Economist, both with American Farm Bureau.  A new series by the Center on Considering Carbon will focus on legal issues with the carbon industry and will complement our upcoming project on “The Conservation Movement:  Legal Needs for Farm and Forest Landowners.”  There’s still more talking to do on carbon markets.

Law bulletin on personal guarantees and agricultural loans
By: Peggy Kirk Hall, Wednesday, April 14th, 2021

Farms and financing--that's a common combination in agriculture.  Because farm operators often use financing arrangements to fund the capital intensive nature of farming, we created the Financing the Farm law bulletin series.  The series aims to help operators, especially new and beginning farmers, understand the legal workings of farm financing arrangements. 

We've just added two new bulletins to the Financing the Farm series.  "Personal Guarantees and Agricultural Loans" addresses the legalities of a personal guarantee--a personal promise made by a third party to pay the loan if the borrower fails to do so.  We explain when lenders might require a personal guarantee for a loan, how a personal guarantee works, and issues and implications for entering into this type of agreement. 

Our second new bulletin is "Understanding Farm Operating Loans."  We discuss how operating loans can meet the cyclical needs of agricultural financing and review different types of operating loans.  Security interests are a common feature of operating loans, and we explain that component of the loan agreement.

The new bulletins are available here on our Ag Law Library's Farm Finance Law shelf along with these other topics in the series:

  • Mortgages
  • Promissory Notes
  • Installment Contracts
  • Leasing Arrangements
  • Secured Transactions
  • Statutory Agricultural Liens

 

The Financing the Farm series is made possible through our partnership with the National Agricultural Law Center, with funding from USDA's National Agricultural Library.

USDA National Agricultural Library and National Agricultural Law Center logos

By: Ellen Essman, Tuesday, January 14th, 2020

A new rule proposed by the USDA Agricultural Marketing Service (AMS) covers a topic that has been up in the air for more than a decade.  The 2008 Farm Bill called on the Secretary of Agriculture to create regulations meant to guide the USDA in determining whether or not a packer, swine contractor, or live poultry dealer gave a person or locality “any undue or unreasonable preference or advantage” when purchasing livestock and meat products. The Secretary of Agriculture entrusted the rulemaking to USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA).  GIPSA did propose versions of the rule in 2010 and 2016, but neither ever went into effect due to congressional prohibitions on such rulemaking and a presidential transition, respectively. (The anticipated regulations have long been referred to as the “Farmer Fair Practice Rules.”) Once Trump came into office, his administration did away with GIPSA and gave its responsibilities to AMS, further delaying the rulemaking. 

After all this time, what does AMS propose for the Farmer Fair Practice Rules?  On January 13, AMS published its proposed rule in the Federal Register.  AMS would add a section to the Packers & Stockyards regulations, which would allow the Secretary of Agriculture to “consider one or more criteria” when deciding whether a packer, swine contractor, or live poultry dealer unfairly favored any person or locality over another in their dealings.  AMS developed four criteria to be considered when determining whether a packer, contractor, or dealer’s actions were unfair.  Actions would be deemed unfair when they:

  1. Cannot be justified on the basis of cost savings related to dealing with different producers, sellers, or growers;
  2. Cannot be justified on the basis of meeting a competitor’s prices;
  3. Cannot be justified on the basis of meeting other terms offered by a competitor; and
  4. Cannot be justified as a reasonable business decision that would be customary in the industry. 

In the rulemaking, AMS provides several examples of fair and unfair practices. AMS also emphasizes several times that the Secretary of Agriculture would not be limited to considering just those four criteria when making a decision, as each situation is unique.  In essence, the proposed language is meant to guide the Secretary’s thinking when making a determination about whether or not an action is unfair.

 If you would like to read more about this proposed rule it is available in its entirety here.  Information about submitting comments on the rule is available at the same link.  Comments on the rule may be submitted up until March, 13, 2020.  Will this version of the elusive Farmer Fair Practice Rules finally stick?  We will have to wait and see. 

By: Peggy Kirk Hall, Monday, October 21st, 2019

Unfortunately, the death of a farmland owner can create conflict within a family.  Often,  transition planning by the deceased could have prevented the conflict.  Such is the case in a family disagreement that ended up before Ohio’s Third District Court of Appeals.  The case pitted two brothers against one another, fighting over ownership of the family farm.

When their mother passed away in 2006, the five Verhoff siblings decided to sell the family farm.  Two of the brothers wanted to purchase the farm, but one of them was also the executor of the estate.  The estate’s attorney advised the executor brother that he should not buy the land directly from the estate due to his fiduciary duties as executor.  The attorney recommended that the executor wait and purchase one-half of the farm from the other brother after it was transferred from the estate to the other brother. 

Following a series of discussions between the two brothers, the executor brother sent half of the farm’s purchase price to the other brother and issued the farm’s deed to the other brother.  Over the next eight years, the two brothers shared a joint checking account used to deposit rental income from the farmland and to pay for property taxes and utilities on the property.  But when the executor brother asked the other brother for a deed showing the executor brother’s half-interest in the farm, the other brother claimed that the executor brother did not have an ownership interest.  The money rendered by the executor brother was a loan and not a purchase, claimed the other brother.  The other brother then began withholding the farm rental payments from the joint checking account. The relationship between the two brothers broke down, and in 2016, the executor brother filed a lawsuit to assert his half-ownership of the farm and his interest in the rental payments.

At trial, a jury found that the brothers had entered into a contract that gave the executor brother half ownership of the farm upon paying half of the purchase price to the other brother.  The trial court ordered the other brother to pay the executor brother half of the current value of the farm and half of the rental income that had been withheld from the executor brother.  The other brother appealed the trial court’s decision. The court of appeals did not agree with any of the other brother’s arguments, and upheld the trial court’s decision that a contract existed and had been violated by the other brother.   Two of the arguments on appeal raised by the other brother are most relevant:  that Ohio’s statute of frauds required that the contract be in writing and that the contract was illegal because an executor cannot purchase land from an estate. 

A contract for the sale of land should be in writing, but there are exceptions

Ohio’s “Statute of Frauds” provides that a contract or sale of land or an interest in land is not legally enforceable unless it is in writing and signed by the party to be charged.   The other brother argued that because there was no written agreement about the ownership of the farm, the situation did not comply with the Statute of Frauds and could not be enforceable.  However, the court focused on an important exception to the Statute of Frauds:  the doctrine of partial performance.  The doctrine removes a verbal contract from the writing requirement in the Statute of Frauds if there are unequivocal acts of performance by one party in reliance upon a verbal agreement and if failing to enforce the verbal agreement would result in fraud, injustice, or hardship to that party who had partly performed under the agreement. 

Based upon evidence produced by the executor brother, the appeals court agreed with the trial court in determining that an oral contract did exist between the two brothers and that the executor brother had performed unequivocal acts in furtherance of the verbal contract.   The court explained that the executor brother had endured “risks and responsibility” by giving the other brother money with the expectation that he would receive rental income from the farm and own a one-half interest in the property.  An injustice would occur if the verbal contract was not enforced because of the Statute of Frauds, as the other brother would receive a windfall at the executor brother’s expense, said the court.  The court concluded that because the doctrine of partial performance had been met, the writing requirement in the Statute of Frauds should be set aside.

Did the executor brother violate his fiduciary duties by purchasing the land?

The other brother also claimed that the verbal contract was illegal because the executor brother made a sale from the estate to himself.  According to the other brother, the sale violated Ohio Revised Code section 2109.44, which prohibits fiduciaries from buying from or selling to themselves or having any individual dealings with an estate unless authorized by the deceased or the heirs. 

The court pointed out, however, that the executor brother did not buy the farm from the estate.  Instead, the executor brother purchased the farm through a side agreement with the other brother who purchased the farm from the estate.  The court noted that this type of arrangement could be voidable if other heirs challenged it.  But since no other heirs did so, the court determined that the executor brother had not violated his fiduciary duties to the estate and allowed the side agreement to stand.

Estate and transition planning can help prevent family disputes

Imagine the toll this case took on the family.  It’s quite possible that parents can prevent these types of conflicts over what happens to the farm when they pass on.  An initial step for parents is to determine which heirs want to transition into owning and managing the farm, and what their future roles with the farm might be.  This often raises other tough questions parents must face:  how to provide an inheritance to children who don’t want the farm when other children do want the farm? Must or can the division of assets be equal among the heirs?  What about other considerations, such as children with special issues or not having heirs who do want to continue the farm?  These are difficult but important questions parents can answer in order to prevent conflict and irreparable harm to the family in the future.

The good news is that there are legal tools and solutions for these and the many other situations parents encounter when deciding what to do with the farm and their assets.   An attorney who works in transition planning for farmers will know those solutions and can tailor them to a family’s unique circumstances.  One agricultural attorney I know promises that there’s a legal solution for every farm family’s transition planning issues.   Working through the issues is difficult, but identifying tools and a detailed plan for the future can be satisfying.  And it will almost certainly prevent years of litigation.

The text of the opinion in Verhoff v. Verhoff, 2019-Ohio-3836 (3rd Dist.) is HERE.  For more information about farm estate and transition planning, be on the lookout for our soon-to-be released Farm Transition Matters law bulletin series or catch us at one of our Farm Transition Planning workshops this winter.

By: Peggy Kirk Hall, Wednesday, August 14th, 2019

Large "utility-scale" solar energy development is on the rise in Ohio.  In the past two years, the Ohio Power Siting Board has approved six large scale solar projects with generating capacities of 50MW or more, and three more projects are pending approval.   These “solar farms” require a large land base, and in Ohio that land base is predominantly farmland.   The nine solar energy facilities noted on this map will cover about 16,500 acres in Brown, Clermont, Hardin, Highland and Vinton counties.  About 12,300 of those acres were previously used for agriculture. 

With solar energy development, then, comes a new demand for farmland:  solar leasing.  Many Ohio farmland owners have received post cards and letters about the potential of leasing land to a solar energy developer.  This prospect might sound appealing at first, particularly in a difficult farming year like this one.  But leasing land for a solar energy development raises many implications for the land, family, farm operation, and community.  It's a long-term legal commitment--usually 25 years or more--that requires careful assessment and a bit of homework. 

To help landowners who are considering solar leasing, we've joined forces with Eric Romich, OSU Extension's Field Specialist in Energy Education, to publish the Farmland Owner's Guide to Solar Leasing.  The online guide explains the state of solar energy development in Ohio, reviews initial considerations for leasing farmland to solar, and describes legal documents and common terms used for solar leasing.  The guide's solar leasing checklist organizes the information into a list of issues to consider, things to do, people to consult, and questions to ask before deciding whether to enter into a solar lease.

The Farmland Owner's Guide to Solar Leasing is available at no cost on our Farm Office website, here.  A separate Law Bulletin of The Farmland Owner's Solar Leasing Checklist is also available on Farm Office, here.  We produced the guide in partnership with the National Agricultural Law Center at the University of Arkansas, with funding from the National Agricultural Library, Agricultual Research Service, at the United States Department of Agriculture.

 

Posted In: Contracts, Property, Renewable Energy
Tags: solar leasing
Comments: 0
By: Peggy Kirk Hall, Friday, July 05th, 2019

With many farmers in Ohio unable to plant before the Final Planting Date for crop insurance, questions are arising about planting and harvesting cover crops on those prevented planting acres.  USDA Risk Management Agency (RMA) rules allow operators to plant cover crops on prevented planting acres and to hay, graze, or cut the cover crops for silage after the posted “harvest date.”  In previous years, the harvest date for cover crops was November 1.   If an operator harvested the cover crop before that date, the prevented plant payment would be reduced from 100% to 35%. 

The RMA has changed the harvest date for 2019, however.  In response to reduced livestock feed supplies that will result from the loss of planted acres this year, the RMA has moved up the cover crop harvest date to September 1.  An operator who plants a cover crop after the Final Planting Date and then cuts the crop for forage on or after September 1 can still receive 100% of the prevented plant payment, even if the operator sells the forage and regardless of whether the operator planted the cover crop during or after the Late Planting Period.  The Final Planting Date in Ohio was June 5 for corn and June 20 for soybeans; the Late Planting Period ended on June 20 for corn and runs until July 15 for soybeans.  Note, too, that a cover crop that was in the ground before the Final Planting Date but was not terminated because the operator couldn’t plant the intended corn or soybean crop can also be harvested for forage on or after September 1.

The RMA’s chart below illustrates payment scenarios for cover crops planted and harvested on prevented planting acres.

Cover Crop Planted

Disposition

Pay 100%

Pay 35%

Pay 0%

Before Final Planting Date (FPD) of the Prevented Crop**

Hayed/Grazed/Cut for silage during or before the end of the LPP

X

 

 

Hayed/Grazed/Cut for silage after the LPP, but before Sept 1

 

X*

 

Hayed/Grazed/Cut for silage on or after Sept 1

X

 

 

Harvested for grain or seed at any time

 

 

X

 

During Late Planting Period (LPP) of the Prevented Crop

Hayed/Grazed/Cut for Silage before Sept 1

 

 

X

Hayed/Grazed/Cut for silage on or after Sept 1

X

 

 

Harvested for grain or seed at any time

 

 

X

 

After Late Planting Period of the Prevented Crop

Hayed/Grazed/Cut for silage before Sept 1

 

X

 

Hayed/Grazed/Cut for silage on or after Sept 1

X

 

 

Harvested for grain or seed at any time

 

X*

 

*Provided the crop claimed as a cover crop is not the prevented crop and all other policy provisions are met.

**Example: Fall-Planted Cover Crop; Spring PP Crop

Other requirements for cover crops

While the cover crop harvest date seems pretty straightforward, don’t be fooled--crop insurance provisions can be tricky.  Farmers planning to put out cover crops on prevented plant acres should work closely with their crop insurance agents to ensure that all policy provisions and documentation requirements are met. 

An initial requirement is that the cover crop planted must meet the definition of an “acceptable cover crop” for crop insurance purposes.   The RMA considers an acceptable cover crop as one that is recognized by agricultural experts as agronomically sound for the area for erosion control or other purposes related to conservation or soil improvement and planted at the recommended seeding rate.  OSU agricultural experts can help provide guidance on acceptable cover crops.   

Operators should also be aware that many seed licenses, particularly for bio-engineered seeds, restrict the use of the seed to grain production only.  In those situations, planting the seed for a cover crop or harvesting it for silage would violate the seed licensing contract and create a liability situation for the operator.

Additionally, note that crop insurance provisions prohibit harvesting the cover crop for grain or seed, and an operator who does so will lose all of the prevented plant payment.  The cover crop harvest can also impact other provisions, such as the farm’s Actual Production History (APH) yields.  These and other provisions highlight the importance of a close working arrangement with the crop insurance agent in order to comply with RMA’s cover crop provisions.

For RMA’s guidance on Prevented Planting Flooding, go to this page.  The site contains a comprehensive list of questions and answers on prevented planting, along with information about the 2019 cover crop provisions.   

By: Evin Bachelor, Wednesday, May 29th, 2019

With all the rain and delayed planting that Ohio farmers have experienced this spring, signing a solar lease has been a very appealing prospect for many farmland owners.  While this may be the right decision for a farm, it is very important that the farmland owner understand exactly what he or she is signing.  Once an energy developer offers to pay you to enter into an agreement, and you sign that agreement, its terms will be legally binding.

In our recent blog post on solar leasing, we discussed some of the early documents that a farmland owner is likely to receive from an interested solar energy developer.  Further, we gave some general advice on what farmland owners should do if an energy developer wants to discuss leasing his or her land.  One of our main suggestions was to take the time to fully understand what the farmland owner is getting into, and that is where this post comes in.

In this blog post, we highlight some of the important provisions of a solar lease that you as a farmland owner should look for in your solar lease, and understand what they mean.  A good solar lease will be very thorough, and include a lot of legalese.  Our upcoming Ohio Farmland Owner’s Guide to Solar Leasing, due out in the next month, will go more in depth than this blog post on the terms below and more.  It would also be a wise decision to consult with an attorney to ensure that your understanding of your solar lease reflects what the documents say.

For now, here are a few provisions to be on the lookout for in your solar lease:

The term.  How long does this lease last?  Most solar leases last for 20 to 30 years.  This is the time during which solar energy is being collected and sold.  Solar energy developers like this multi-decade duration because it allows them to use of the solar panels for their expected productive lifespan.

Thirty years is a long time.  Many careers are retirement-eligible after that period, and many farms will transition to the next generation in that amount of time.  This long of a term is not necessarily a bad thing.  It just means that a farmland owner should look back and look ahead.  Think back 30 years to 1989.  What all has changed on your farm?  What would it have looked like to not be able to use this ground for the past 30 years?  Now look ahead.  What do you expect your needs and those of your family to look like when this lease ends in 2049?  Only you can determine if not being able to use your land for that long is a good thing.

Phases.  How is this lease broken up?  We just explained that most solar leases will last for 20 to 30 years, but that clock usually starts ticking once construction has started on the project.  Solar energy developers will often reserve a year or two during which they can conduct their final feasibility studies and obtain necessary permits.  Some leases structure this pre-construction phase as merely an option phase, meaning that the energy developer will pay a small amount of rent to keep its option alive for that one or two-year period, but it does not necessarily have to commence construction.

Further, toward the end of the term, the energy developer may have written in an option to renew for another 5 or 10 years.  These renewals are often structured as a right that the energy developer may exercise merely by giving notice to the landowner.  Additionally, in the middle, if there is a natural disaster that puts the operation out of service for any period of time, a solar lease may stop the clock from ticking until the project is operational again and solar energy is being collected.

The important take-away for the phases is being able to know when each phase begins and ends.  When all of the different phases are combined, instead of just a 30-year lease, you could be looking at a 42-year agreement.  The only way to know how long it could last is to thoroughly read the entire lease.

A description of the premises.  Every solar lease will contain a description of the premises.  If an entire parcel is being leased, then this part is fairly easy.  However, if only a portion of the parcel is being lease, the farmland owner will want to make sure that the lease provides an adequate description so that the leased portion can be easily determined on the ground.  Often, this will include a survey and maps.  Knowing the boundaries is important because these leases are often exclusive, such that the farmland owner has little or no use or access of the leased land throughout the term.

Easements.  What rights are being granted to the solar energy developer?  Solar leases include a series of easements that give the solar energy developer the right to use your land.  Some of the common easements include a:

  • Construction easement: a right to cross over portions of the farmland owner’s property in order to construct the solar facility
  • Access easement: a right to cross over portions of the farmland owner’s property to reach the solar facility
  • Transmission easement: a right to install power lines, poles, and other equipment to transmit the energy produced by the solar panels to the grid
  • Solar easement: a right to unobstructed access to the sun without interference from structures or other improvements
  • Catch-all easement: a general right to do whatever is necessary for the benefit of the project

Solar energy developers want their easements to be as broad and generous as possible in order to maximize their flexibility with the project.  This is not always to the advantage of the farmland owner.  If the lease is general enough to allow the solar energy developer to sub-lease to another entity such as a telecommunications company, the landowner will have a difficult time preventing the solar energy developer from doing so.  The farmland owner wants to make sure that the easements being granted are specific enough to not result in any surprises.

Landowner obligations and rights.  What does the lease require of you as the farmland owner?  Usually private solar energy developers include a non-interference provision, a quiet enjoyment provision, and an exclusivity provision.  All combined, these provisions are a promise by the farmland owner to not enter the solar facilities without prior permission, not interfere with the solar facilities, and not allow anyone else to do so for the duration of the term.

Further, solar leases often include a confidentiality provision that courts will enforce as legally binding.  These provisions allow the solar energy developer to control the flow of its proprietary information, and also prevent landowners from talking with one another about topics such as rent rates.  It is important to understand:

  • What information is protected
  • If there are any exceptions
  • When consent might be granted
  • If specific penalties apply
  • How long confidentiality lasts

The solar lease may also include a provision about farmland owner improvements.  These explain if and when the landowner needs to obtain prior approval of the solar energy developer in order to build a structure or plant something that may interfere with the solar project.

Property maintenance.  Who is going to mow?  Ohio landowners have a legal duty to cut noxious weeds, and a well drafted lease will cover which party to the lease bears responsibility for keeping the leased land clear.  Usually, the solar energy developer will take this responsibility, but it helps to have this in writing.

Cleanup terms.  Cleanup involves a lot of questions.  Does the solar lease require the solar energy developer to restore the land to its previous state?  If so, how is this measured?  Will all stakes and foundations be removed?  Will all improvements, like roadways, be removed?  How will the solar energy developer guarantee that it will be able to pay for this cleanup in 30 years?  Does it post a security, and if so, when?  A thorough lease will answer these questions.

Tax and conservation penalties.  Tax and conservation also involves a lot of questions because constructing and operating a solar facility will make the property ineligible for the full benefits of CAUV and most conservation programs.  Does the lease require the solar energy developer to cover real estate taxes?  Does the lease require the solar energy developer to cover the three-year lookback penalty for removing land from CAUV?  What will the solar energy developer do toward the end of the lease so that the land can be put back into production and made CAUV eligible again?  Similar questions must be asked for conservation programs.

Compensation.  It’s not that we saved the fun and best part for last.  We just wanted to make sure that compensation is not the first and only thing considered when deciding whether or not to enter into a solar lease.  While it certainly is important, some of the issues discussed above must be just as carefully understood.

The solar leases that we have seen involve cash rent that increases over time based upon a fixed escalator.  The escalator is a percent increase.  If the escalator increases at a rate greater than inflation, then the farmland owner will receive more bang for his or her land.  However, if the escalator increases at a rate lower than long-term inflation, then the solar energy developer will have to pay less over time.

Another point of compensation to consider is how damages will be calculated for harm to property and crops.  When the solar energy developer decides it is time to start construction, its option and easements grant it the right to begin construction even if there is a crop already in the ground.  This makes it in a farmland owner’s best interest to have this issue addressed up front.  These damages will often be calculated my multiplying the number of acres by the average county yield for that crop by that crop’s commodity future price with the Chicago Board of Trade for a given date.  This provides an objective calculation for damages.

Verbal promises.  A note of caution: if the solar energy developer makes you a verbal promise, ask for that promise to be included in the written lease.  If there is a conflict between what a representative of the solar energy developer tells you and what is written in the lease, the terms in the written lease are likely to prevail.

The activity we are seeing across Ohio right now with solar reminds us of the early stages of the recent wind and shale energy booms.  Some of the biggest regrets that we hear about are from landowners who thought they were getting a better deal than they actually did.  Reading through, understanding, and thinking about the lease is an essential part of calculating whether or not the lease being offered is actually a good deal for a farmland owner and his or her family.  Don’t be afraid to reach out to your team of professionals in this process.  Your attorney, tax professional, extension educator, and others can be a great resource.

By: Peggy Kirk Hall, Thursday, May 23rd, 2019

We haven’t seen much sun in Ohio lately, but that hasn’t stopped the growth of solar energy development.  In the past two years, the Ohio Power Siting Board has approved six large scale solar projects with generating capacities of 50MW or more, and three more projects are pending approval.   These “solar farms” require a large land base, and in Ohio that land base is predominantly farmland.   The nine solar energy facilities noted on this map will cover about 16,500 acres in Brown, Clermont, Hardin, Highland and Vinton counties.  About 12,300 of those acres were previously used for agriculture. 

We’re hearing that solar energy developers are on the lookout for more land in these and several other counties across the state.  As the markets fluctuate and weather continues to prevent planting, leasing farmland to a solar energy developer might look pretty appealing.  But we always urge caution and due diligence for any leasing situation, and solar energy is no exception. 

What should you do if an energy developer wants to discuss leasing your farmland for a large scale solar energy facility?  Our best advice is not to jump too quickly.  Instead, take the time to fully understand what you’re getting into.  A typical solar lease can last for 30 years and thus can have long term legal, financial and social implications for a farmland owner.  An important initial question is how does this type of land use fit into your future vision for your land, your farm operation, and your family?  If you don’t yet know much about large scale solar development and what it means for your land, give a listen to this webinar from our partner, the National Agricultural Law Center.

In this post, we’ll focus on the beginning of the solar leasing legal process.   The large scale solar projects in Ohio range from 600 to 3,300 acres of land, so a developer first has to assemble the land base once it identifies an area for a solar development project.   Leasing the land is the typical mechanism used for the solar projects in Ohio.  If a developer is interested in leasing your land, the first documents you may receive from the developer are a letter of intent and/or an option to lease.  These documents are the precursors to a solar lease but, like a lease, are written in favor of the developer and establish legal rights for the developer.  Careful review is critical, as these documents can tie up the land and the landowner for several years or more.

The letter of intent Some developers use a written letter of intent to notify a landowner of the developer’s interest in a parcel of land.  The purpose of the letter is to begin the process of considering the land for a long term solar lease.   Note, however, that a letter of intent might also contain a confidentiality clause that would prevent the landowner from talking with other developers about the land or sharing details of the developer’s interest with anyone.   Be aware that courts will generally enforce a signed letter of intent as a legally binding contract if the developer has offered the landowner a payment or similar benefit for signing the letter.   By signing confidentiality provisions in a letter of intent, a landowner can be foreclosed from considering other solar leasing opportunities.

The option to leaseMore commonly, the first document a solar developer will ask a landowner to sign is an option to lease.  Don’t be fooled by the name of this document and think that it’s not a legally binding agreement.  While an option is not the same as a lease, it can have the same legal effect of tying up the land for a certain period of time and might also dictate many of the terms of the lease if the developer decides to move forward on the project.

An option to lease grants the solar developer rights to explore the possibility of using the land for a solar project, but the developer may choose not to lease the land or develop the project.  The option period, typically up to five years, gives the developer time to conduct due diligence on the property, assemble other land parcels, secure financing, and obtain government approval for the project.  At the end of the option period, the developer should decide whether or not to proceed with the project.  An option also can give the developer the right to terminate and back out of the option at any time prior to the end of the option period. 

On the other hand, a landowner doesn’t have an option to back out once he or she signs an option to lease.  The landowner is bound for the entire option period.   Like a letter of intent, an option can contain confidentiality and “exclusive dealing” provisions that prevent the landowner from sharing details or entering into leasing opportunities with other developers during the option period.  The option might also require the landowner to cooperate with the developer’s due diligence and help the developer obtain approvals and permits.  Many options also include language that allows the developer to assign the option to another solar developer.

Be aware that an option can also contain significant leasing terms that carry over if the developer proceeds with the project.  For example, in addition to allowing the developer to consider the land for a project, the option to lease could also include provisions for the period of the actual long term solar lease, the lease payment amount, easement rights, and landowner obligations.  Landowners might think that such terms could be negotiable later if the parties sign an “official” solar lease, but the option language may bind the landowner to the leasing terms that are presented in the option.  Sometimes, the option itself becomes the lease.  The net effect:  a landowner who thinks he or she is just signing a five year option agreement might also be committing to a 30 year solar lease and a predetermined lease payment.

What about crop production during the option period?  An option might contain language stating that the landowner may continue managing and operating the property in the same way after agreeing to the option.  But the option might also allow the developer to enter the property and proceed with the project at any time, including when crops are in the ground, although the option might not provide the landowner payment for the lost production.  In that case, the landowner simply loses out on the crop if the option doesn’t contain provisions for lost production.

As for payment for the option, a landowner usually receives an initial payment for signing the option, perhaps several thousand dollars or more.  During the option period, the landowner also typically receives an annual payment that is based on number of acres, perhaps $20 dollars per acre or more. 

Should you have an attorney review an option to lease?  Yes.  Option language can vary and we surely haven’t addressed all potential issues in this post.   A close examination by an attorney shouldn’t take much time or cost a lot and will ensure that you fully understand the legal implications of entering into the option to lease. 

Are the terms of an option negotiable?  That’s up to the landowner and the developer, but don’t assume that the developer won’t negotiate.  If you’re faced with an option to lease and don’t like the terms, try negotiating.  An attorney can be helpful here, also.

In our next solar leasing post, we’ll review the terms of a solar lease and consider how the lease can impact agricultural landowners over the typical 30 year lease period.  Watch also for our upcoming Ohio Farmland Owner’s Guide to Solar Leasing, due out in the next month, which will provide a detailed examination of the solar leasing process.

By: Evin Bachelor, Wednesday, April 24th, 2019

Since our last legislative update in March, Ohio’s legislators and staffers have been busy introducing more legislation.  As of this morning, there are 332 bills that have been introduced by members of the Ohio General Assembly since January.  Some have already passed both the Ohio House and Senate, but most are still pending.  While we cannot write about every pending bill, the following bills relate to agricultural, local government, or natural resource law.  In addition to these bills that we have not yet covered, see the end of this post for an update about bills we mentioned in our last blog post.

Tax

  • Senate Bill 183, titled “Allow tax credits to assist beginning farmers.”  Many agricultural news outlets quickly picked up on this bill.  The bill would authorize two nonrefundable tax credits.  One is for beginning farmers who attend a financial management program, while the other is for individuals or businesses that sell or rent farmland, livestock, buildings, or equipment to beginning farmers.  The Ohio Department of Agriculture would be responsible for certifying individuals as beginning farmers and for approving eligible financial management programs.  Click HERE for more information about the bill, and HERE for the current official bill analysis.
  • House Bill 109, titled “Grant tax exemption for land used for commercial maple syruping.”  The bill would exempt “maple forest land” from having to pay property taxes.  The landowner would have to apply for the designation with the Ohio Department of Taxation.  Eligible lands are those lands bearing a stand of maple trees where 1) an average of at least thirty taps are drilled each year into at least fifteen different maple trees per acre of land, 2) the harvested sap is incorporated into a maple product for commercial sale, 3) the land is managed under a forest land maintenance plan, and 4) the property has ten or more acres or the sap harvest produces an average yearly gross income of more than $2,500.  Note that all four requirements must be met in order to qualify as an exempt maple forest land.  Click HERE for more information about the bill.

Real property

  • House Bill 103, titled “Change law relating to land installment contracts.”  Ohio’s Land Installment Contract Law, which applies to contracts involving properties with a residence but not contracts involving only open farmland, would see some significant changes under this proposed legislation.  The bill would shift the burden of paying property taxes and homeowner’s insurance from the buyer to the seller.  The seller would also be prohibited from holding a mortgage on the property.  The contract would have to include provisions stating that the seller is responsible for all repairs and maintenance on the property.  Interest rates would also be capped so that the rate cannot exceed the Treasury bill rate for loans of the same length of time by 2%.  For example, if a 5-year land installment contract is entered into on September 7th and the 5-year Treasury bill rate on that day is 2.64%, the interest rate for the land installment contract would not be able to exceed 4.64% under this bill.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

Estate planning

  • House Bill 209, titled “Abolish estate by dower.”  Dower provides a surviving spouse with rights in any real property owned by a decedent spouse.  This bill would end dower estates moving forward, but any interests that vest before the change would take effect would still be valid.  Click HERE for more information about the bill.

Local government

  • Senate Bill 114, titled “Expand township authority-regulate noise in unincorporated area.”  A board of township trustees is currently limited to regulate noise coming from either areas zoned as residential or premises where a D liquor permit has been issued.  The bill would expand the township’s authority to regulate noise anywhere within the unincorporated territory of the township.  However, the bill does not affect another section of the law that exempts agriculture from noise ordinances, so agricultural activities would not be subject to any new noise ordinances, should this law pass.  Click HERE for more information about the bill, and HERE for the current official bill analysis.
  • Senate Bill 12, titled “Change laws governing traffic law enforcement.”  Notably for townships, this bill would prohibit township law enforcement officers or representatives from using a traffic camera on an interstate highway.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

Regulation of Alcohol

  • House Bill 181, titled “Promote use of Ohio agricultural goods in alcoholic beverages.”  The bill would authorize the Ohio Department of Agriculture to create promotional logos that producers of Ohio craft beer and spirits may display on their products.  Specifically, the bill would authorize an “Ohio Proud Craft Beer” and an “Ohio Proud Craft Spirits promotion.  Click HERE for more information about the bill.
  • House Bill 160, titled “Revised alcoholic ice cream law.”  Under current Ohio law, those wishing to sell ice cream containing alcohol must obtain an A-5 liquor permit and can only sell the ice cream at the site of manufacture, and that site must be in an election precinct that allows for on- and off-premises consumption of alcohol.  This bill would allow the ice cream maker to sell to consumers for off-premises enjoyment and to retailers that are authorized to sell alcohol.  Click HERE for more information about the bill.
  • House Bill 179, titled “Exempt small wineries from retail food establishment licensing.”  The bill would exempt small wineries that produce less than 10,000 gallons of wine annually from having to obtain a retail food establishment license in order to sell commercially prepackaged foods.  The sales of the prepackaged foods cannot exceed more than 5% of the winery’s gross annual receipts.  The winery would have to notify the permitting authority that it is exempt, and also notify its customers about its exemption.  Click HERE for more information about the bill.

Energy

  • House Bill 20, titled “Prohibit homeowner associations placing limits on solar panels.”  The bill would prohibit homeowners and neighborhood associations, along with civic and other associations, from imposing unreasonable restrictions on the installation of solar collector systems on roofs or exterior walls under the ownership or exclusive use of a property owner.  Condominium properties would similar be prohibited from imposing unreasonable restrictions where there are no competing uses for the roof or wall space where a solar collector system would be located.  According to the bill analysis, an unreasonable limitation is one that significantly increases the cost or significantly decreases the efficiency of a solar collector system.  Individual unit owners would also have the right to negotiate a solar access easement.  Click HERE or more information about the bill, and HERE for the current official bill analysis.
  • Senate Bill 119, titled “Exempt Ohio from daylight savings time.”  The bill would require Ohio to observe Daylight Savings Time on a permanent basis effective March 8, 2020.  The state’s clocks would spring forward in March, but there would be no falling back in the fall.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

As for the bills that we previously covered in our March legislative update, the following chart explains where those bills stand.  Those that have passed at least one chamber have their passage status underlined in the column on the right.  Those that have had at least one committee hearing list the number of hearings, while those that have not had any activity in committee state only the committee that the bill has been referred to from the floor.

Category

Bill No.

Bill Title

Status

Hemp

SB 57

Decriminalize hemp and license hemp cultivation

- Passed Senate

- Completed first committee hearing in House

Watershed Planning

SB 2

Create state watershed planning structure

- Referred to Senate Agriculture and Natural Resources Committee

Animals

HB 24

Revise humane society law

- Completed third committee hearing in House

Animals

HB 124

Allow small livestock on residential property

- Referred to House Agriculture and Rural Development Committee

Oil and Gas

HB 55

Require oil and gas royalty statements

- Completed first committee hearing in House

Oil and Gas

HB 94

Ban taking oil or natural gas from bed of Lake Erie

- Referred to House Energy and Natural Resources Committee

Oil and Gas

HB 95

Revise oil and gas law about brine and well conversions

- Referred to House Energy and Natural Resources Committee

Mineral Rights

HB 100

Revise requirements governing abandoned mineral rights

- Referred to House Energy and Natural Resources Committee

Regulations

SB 1

Reduce number of regulatory restrictions

- Completed three committee hearings in Senate

Business Law

SB 21

Allow corporation to become benefit corporation

- Passed Senate

- Completed first hearings in two separate House committees

Animals

SB 33

Establish animal abuse reporting requirements

- Completed fifth committee hearing in Senate

Local Gov’t

HB 48

Create local government road improvement fund

- Referred to House Finance Committee

Local Gov’t

HB 54

Increase tax revenue allocated to the local government fund

- Referred to House Ways and Means Committee

Property

HB 74

Prohibit leaving junk watercraft or motor uncovered on property

- Completed first committee hearing in House

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