Solar and wind energy development is thriving in Ohio, and most of that development will occur on leased farmland. Programs in the newly enacted federal Inflation Reduction Act might amplify renewable energy development even more. The decision to lease land for wind and solar development is an important one for a farmland owner, and one that remains with a farm for decades. It’s also a very controversial issue in Ohio today, with farmers and community residents lining up on both sides of the controversy. For these reasons, when a landowner receives a “letter of intent” for wind or solar energy development, we recommend taking a careful course of action. Here are a few considerations that might help.
Purpose and legal effect of a letter of intent. Typically, a letter of intent for renewable energy development purposes is not a binding contract, but it might be. The purposes of the letter of intent are usually to provide initial information about a potential solar lease and confirm a landowner’s interest in discussing the possibility of a solar lease. Unless there is compensation or a similar benefit provided to the landowner and the letter states that it’s a binding contract, signing a letter of intent wouldn’t have the legal effect of committing the landowner to a solar lease. But the actual language in the letter of intent would determine its legal effect, and it is possible that the letter would offer a payment and contain terms that bind a landowner to a leasing situation.
Attorney review is critical. To ensure a clear understanding of the legal effect and terms of the letter of intent, a landowner should review the letter with an attorney. An attorney can explain the significance of terms in the letter, which might include an “exclusivity” provision preventing the landowner from negotiating with any other solar developer for a certain period of time, “confidentiality” terms that prohibit a landowner from sharing information about the letter with anyone other than professional advisors, “assignment” terms that allow the other party to assign the rights to another company, and initial details about the proposed project and lease such as location, timeline, and payments. Working through the letter with an attorney won’t require a great deal of time or cost but will remove uncertainties about the legal effect and terms of the letter of intent.
Negotiating an Option and Lease would be the next steps. If a landowner signs a letter of intent, the next steps will be to negotiate an Option and a Lease. It’s typical for a letter of intent to summarize the major terms the developer intends to include in the Option and Lease, which can provide a helpful “heads up” on location, payments and length of the lease. As with the letter of intent, including an attorney in the review and negotiation of the Option and Lease is a necessary practice for a landowner. We also recommend a full consideration of other issues at this point, such as the effect on the farmland, farm business, family, taxes, estate plans, other legal interests, and neighbor relations. Read more in our “Farmland Owner’s Guide to Solar Leasing” and “Farmland Owner’s Solar Leasing Checklist”.
New laws in Ohio might prohibit the development. A new law effective in October of 2021 gives counties in Ohio new powers to restrict or reject wind and solar facilities that are 50 MW or more in size. A county can designate “restricted areas” where large-scale developments cannot locate and can reject a specific project when it’s presented to the county. The new law also allows citizens to organize a referendum on a restricted area designation and submit the designation to a public vote. Smaller facilities under 5-MW are not subject to the new law. Several counties have acted on their new authorities under the law in response to community concerns and opposition to wind and solar facilities. Community opposition and whether a county has or will prohibit large-scale wind and solar development are additional factors landowners should make when considering a letter of intent. Learn more about these new laws in our Energy Law Library.
It's okay to slow it down. A common reaction to receiving a letter of intent is that the landowner must act quickly or could lose the opportunity. Or perhaps the document itself states a deadline for responding. A landowner shouldn’t let those fears prevent a thorough assessment of the letter of intent. If an attorney can’t meet until after the deadline, for example, a landowner should consider contacting the development and advising that the letter is under review but meeting the deadline isn’t possible. That’s a much preferred course of action to signing the letter without a review just to meet an actual or perceived deadline.
For more information about energy leases in Ohio, refer to our Energy Law Library on the Farm Office website at https://farmoffice.osu.edu/our-library/energy-law.
As our readers can probably tell by now, there has been a lot happening in the agricultural law world over the past couple of weeks. From the Lake Erie Bill of Rights going on the ballot in Toledo to a new court decision on wedding barns, we’ve done our best to keep you in the know. While the legislative sessions in Congress and the Ohio General Assembly have started to shift into a higher gear, covering those bills will take up a lot of space, so be on the lookout for a legislative update soon.
For now, here’s our latest gathering of agricultural law news that you may want to know:
Yep, more WOTUS. The U.S. EPA has announced new public hearings regarding its proposed revised definition of Waters of the United States. The hearing will be held on Wednesday, February 27th and Thursday, February 28th at the Reardon Convention Center in Kansas City, Kansas. For those who wish to provide input, but are unable to make the trip, the U.S. EPA will accept written comments from the public online at http://www.regulations.gov with the docket ID number: EPA-HQ-OW-2018-0149. The online comment portal will accept new submissions until April 14th. The text of the proposed rule, which the U.S. EPA released just in time for Valentine’s Day, is available on the online comment portal page as well as in the Federal Register. For more information about either attending the meeting or submitting a comment to the U.S. EPA, visit the Federal Register’s webpage here. For more information about WOTUS rulemaking, see our most recent WOTUS blog post, or visit the U.S. EPA’s webpage here.
Conservation funding for federal lands could be restored under U.S. Senate bill. In a sign of bipartisanship, the U.S. Senate passed the National Resources Management Act by a vote of 92-8. If the House approves and it receives the President’s signature, the bill would modify a number laws addressing the management and conservation of federal lands, and would also restore funding to the Land and Water Conservation Fund, which had expired last fall. This fund primarily supports the protection of federal public lands and waters, but it also promotes voluntary conservation on private lands and awards grants to states for the acquisition and development of parks and outdoor recreation sites. Also in the bill are two specific changes of note for Ohio. First, section 6004(c) of the bill would increase the cap on total spending for the Ohio & Erie National Heritage Canalway from $10 million to $20 million. Second, section 2502 of the bill would extend the Lewis and Clark National Historic Trail from Illinois to Pennsylvania, which will include portions in Ohio. You can read the full text of the bill and see the official analyses on Congress’s website here.
FFA charter amendments approved by Congress and the President. Citing issues arising from the U.S. Department of Education’s not filling seats on the National FFA Board of Directors, the National FFA sought an amendment to its charter. Congress originally granted the charter in 1950, and any changes to the charter must be done so by an act of Congress. One of the major changes sought by National FFA was a reduction in the number of seats on the board of directors that must be appointed by the Department of Education. By not filling all of the seats on the Board of Directors, the National FFA faced difficulty making decisions because it often could not meet its quorum for meetings. The new amendments reduce the organization’s reliance on an appointment to its board of directors by the U.S. Department of Education, which increases the organization’s ability to self-govern. You can read the text of the bill on Congress’s website here, or visit the National FFA’s webpage on frequently asked questions about the charter revision here.
The PACT Act is back. The Prevention of Animal Cruelty and Torture Act has been reintroduced into the U.S. House of Representatives. The act would allow for significant fines and up to seven years in prison for those convicted of animal crushing, creating animal crushing videos, or distributing animal crushing videos. The bill defines crushing as “actual conduct in which one or more living non-human mammals, birds, reptiles, or amphibians is purposely crushed, burned, drowned, suffocated, impaled, or otherwise subjected to serious bodily injury.” However, the bill does contain exceptions for conduct that is related to “customary and normal veterinary, agricultural husbandry, or other animal management practice[s];” “the slaughter of animals for food;” legal hunting, trapping, and fishing activities; research; defense of a human; and euthanizing an animal. Many in the agriculture community have opposed the bill, arguing that it is duplicative in light of animal protections created by the states and that it risks courts and juries interpreting the language too broadly. At this time, the bill has only been introduced in the U.S. House and referred to the Judiciary Committee.
Nebraska wind farms sue to enforce contract and keep utility from flying off into the sunset. Three Nebraska windfarms in a power supply contract with the Nebraska Public Power District (NPPD) have filed suit to prevent the utility from backing out of the contract. The wind farms filed a complaint in federal court in Nebraska on January 30th, alleging that NPPD expressed its intention to terminate a power purchase agreement, and that doing so would be wrongful. The complaint explains NPPD’s position that the wind farms materially violated the contract by investing in other businesses and operations. The plaintiffs disagree that there was a breach, but say that even if there was, NPPD cannot terminate the contract because it knew of the transactions. The plaintiffs also note that NPPD has eminent domain power. They argue that by terminating the contract, NPPD knows that the wind farms will likely enter default with creditors. This could allow NPPD to acquire the rights of the wind farms through a foreclosure sale or eminent domain. To prevent NPPD from terminating the contract, the parties requested, and were granted, a temporary restraining order until March 1st that requires NPPD to honor the contract. The case is cited as Laredo Ridge Wind, LLC v. Nebraska Pub. Power Dist., No. 8:19-cv-45 (D. Neb.).
Wisconsin Supreme Court asked to decide scope of agency power to regulate agriculture. A Wisconsin court of appeals has certified two cases to the Wisconsin Supreme Court, asking the court to determine the extent of the Wisconsin Department of Natural Resource’s authority to regulate agriculture in order to protect groundwater. A certification represents a lower court seeking guidance on an issue that the lower court believes it is not in the best position to decide without knowing what the higher court thinks. These cases are important for Wisconsin because they pertain to a law passed in 2011 that restrained authority of state agencies to act beyond express grants of authority by the state legislature. Specifically, the cases ask whether the Wisconsin DNR can impose conditions on issuing a permit beyond the conditions stated in a statute. The affected parties in the cases range from dairy farms to manufacturers and from food processors to municipal water utilities. Environmental groups hope that state agencies may take a more expansive look at environmental impacts when reviewing permit applications. The two certification orders are available here and here.
The midterm elections are over, and Thanksgiving is upon us. A lot of activity is expected out of Washington and Columbus as the legislative sessions wind up. The OSU Extension Agricultural and Resource Law team will continue to keep you up to date on the legal issues affecting agriculture as we enter into the holiday season.
Here’s our gathering of ag law news you may want to know:
State of Ohio sued over wind turbine setbacks. Four farmers in Paulding County have joined with The Mid-Atlantic Renewable Energy Coalition to sue the State of Ohio over wind turbine setbacks added to the 2014 biennial budget that some allege curtailed wind energy development in Ohio. In that budget bill, lawmakers included provisions late in the lawmaking process to amend Ohio Revised Code § 4906.20, which establishes the setback requirements for wind turbines. Those provisions more than doubled the distance that wind turbines must be located away from the nearest residential structures. The plaintiffs in this lawsuit allege that including these restrictions in the budget bill violated the single-subject provisions of the Ohio Constitution because the setbacks lack a “common purpose or relationship” to the rest of the budget bill. On this issue, the Ohio Supreme Court said in the case In re Nowak (cited as 2004-Ohio-6777) that the single-subject rule is a requirement that legislators must abide by, but that only a “manifestly gross and fraudulent” violation will result in the law being struck down. The plaintiff’s complaint is available here. Stay tuned to the Harvest for updates.
Department of Labor proposes rule requiring H-2A advertisements be posted online. The U.S. Department of Labor (DOL) published a notice of proposed rulemaking in the Federal Register on November 9th that would change how employers must advertise available positions before they may obtain H-2A worker permits. H-2A permits are work visas for temporary agricultural workers who are non-U.S. citizens. Currently, employers must advertise work in a local newspaper of general circulation for at least two consecutive days, one of which must be a Sunday. This requirement is located in the Code of Federal Regulations at 20 C.F.R. § 655.151. The DOL now proposes to modernize the recruitment advertising rule by requiring employers to post the jobs online instead of in print. The DOL’s notice explained that it believes online postings would more effectively and efficiently give U.S. workers notice of job opportunities. Further, the notice explained that the DOL intends to only require online advertisements, which would render newspaper advertisements unnecessary. U.S. Secretary of Agriculture Sonny Perdue issued a press release in support of the DOL’s proposal. The public may submit comments to the DOL about the proposed rule. Those wishing to comment may do so until December 10th, 2018, by visiting the proposed rule’s webpage in the Federal Register.
LLC agreement to adjust member financial contributions must be in writing. The Ohio Fourth District Court of Appeals recently affirmed a decision finding a verbal agreement to adjust contributions between members of a Limited Liability Company (LLC) to be unenforceable, even if the other party admitted to making the statements. Ohio Revised Code § 1715.09(B) requires a signed writing in order to enforce a “promise by a member to contribute to the limited liability company,” and therefore the court could not enforce an oral agreement to adjust contributions. The Fourth District Court of Appeals heard the case of Gardner v. Paxton, which was originally originally filed in the Washington County Court of Common Pleas. The plaintiff, Mr. Gardener, argued that his business partner breached an agreement to share in LLC profits and losses equally. In order to share equally, both parties would have needed to adjust their contributions, but Mr. Paxton only made verbal offers that were never reduced to writing. Because there was no writing, Mr. Paxton’s statements were not enforceable by his business associate against him.
Ohio legislation on the move:
The Ohio General Assembly has returned from the midterm elections with a potentially busy lame duck session ahead of it. Already a number of bills that we have been monitoring have seen activity in their respective committees.
- Ohio Senate Agriculture Committee held first hearing on multi-parcel auction bill. State senators heard testimony on House Bill 480 last Tuesday, November 13th. The bill would authorize the Ohio Department of Agriculture to regulate multi-parcel auctions, which are currently not specifically addressed in the Ohio Revised Code. The bill also defines “multi-parcel auction,” saying such an auction is one involving real or personal property in which multiple parcels or lots are offered for sale in part or in whole. The bill would also establish certain advertising requirements. The bill’s primary sponsor, Representative Brian Hill of Zanesville, says that he introduced the bill in an effort to recognize by statute what auctioneers are already doing, and to do so without interrupting the industry. The bill passed the Ohio House of Representatives 93-0 in June. For more information on the legislation, visit the House Bill 480 page on Ohio General Assembly’s website or view this bill analysis prepared by the Ohio Legislative Service Commission.
The development of wind farms is a controversial land use issue in Ohio, as in other states. Arguments abound on both sides and revolve around private property rights, community land use planning, green energy, preservation of open landscapes and wildlife impacts. It is this last factor--impacts on wildlife--that convinced a federal court to halt a wind development project in the Appalachian mountains of West Virginia, much to the dismay of developers of the $300 million project.
The Beech Ridge wind energy project involves construction of 122 wind turbines along the ridgeline of the Appalachian mountains in Greenbrier County. About forty of the turbines are currently in the construction phase, but the federal court has issued an injunction stopping construction of any additional turbines and limiting existing turbine use to the bat's winter hibernation period. The reason: project developers failed to take seriously the issue of harm to the Indiana bat. The Indiana Bat is on the list of "endangered" species, and interference with the animal or its habitat is prohibited by the federal Endangered Species Act (ESA). The wind project developers did hire an environmental consultant to examine the situation, but the consultant repeatedly disregarded information and advice from the U.S. Fish and Wildlife Service (FWS) that would have more accurately identified the Indiana bat population. The court critized the consultant's efforts, stating that "[s]earching for bats near proposed wind turbine locations for one year instead of three, looking in one season rather than three, and using only one method to detect bats was wholly inadequate to a fair assessment." Later surveys revealed the existence of two caves within ten miles of the project that are home to hundreds of bats, including Indiana bats, and evidence suggested that nearly 7,000 bats would die each year because of the project.
Despite the existence of the bats near the project, however, the court pointed out that Beech Ridge's developers could have requested an "incidental take permit" (ITP) pursuant to the ESA. The ESA's incidental take permit mechanism could have allowed the project to proceed, but with preparation of an FWS approved Habitat Conservation Plan demonstrating that measures would be taken to minimize or mitigate adverse effects on the Indiana bat. "Indeed, the tragedy of this case is that Defendants disregarded not only repeated advice from the FWS but also failed to take advantage of a specific mechanism, the ITP process, established by federal law to allow their project to proceed in harmony with the goal of avoidance of harm to endangered species," said the court.
The Animal Welfare Institute and Mountain Communities for Responsible Energy filed the lawsuit, and produced expert testimony indicating that Indiana bats exist near the project site and that there was a very high likelihood that the turbines would kill and injure the bats. The court drew upon Benjamin Franklin in its response to the expert testimony, stating ". . . the Court concludes, by a preponderance of the evidence, that, like death and taxes, there is a virtual certainty that Indiana bats will be harmed, wounded, or killed imminently by the Beech Ridge Project . . ."
The difficulty of rendering such a decision is apparent in the court's opinion. Judge Titus expresses disappointment and frustration with the project developer's approach to the bat issue, and "reluctantly" orders the injunction. But unlike many in the wind development arena, the court does not hesitate to give credibility to the interference of wind turbines with the bat population. He recognizes that the case illustrates a clash between two federal policies: protection of species and encouragement of renewable energy development, but insists that the two policies are not necessarily in conflict because of the ESA's incidental take option and the opportunity for harmonious development. Seeking an incidental take permit is the only avenue available to help project developers resolve their "self-imposed plight," states the court. "The development of wind energy can and should be encouraged," says Judge Titus, "but wind turbines must be good neighbors."
As the Indiana bat did years ago, wind development has made its way to Ohio. The Ohio Power Siting Board is currently considering approval of several wind projects including the Buckeye Wind Project, a 70 turbine project in Champaign County that would be Ohio's largest wind development. Testimony by an environmental consultant at last month's hearings before the board focused on potential impacts of the project on the Indiana bat. According to the consultant, studies revealed no evidence of the Indiana bat in the project area. Studies in nearby Logan County in 2008 revealed the existence of Indiana bats in an area that has since been removed from the project, and another wind developer reported finding an Indiana bat in Champaign County earlier this year. The Ohio Power Siting Board may take months to decide whether to approve the Buckeye Wind Project and to indicate its conclusions about impacts on Indiana bats.
In accordance with state policy promoting renewable resource development, the Ohio Department of Natural Resources encourages wind developers to enter into a voluntary agreement to cooperatively address wildlife issues. In the agreement, ODNR promises not to pursue liability against the developer for any incidental takings of endangered or threatened species. However, ODNR's agreement cannot prevent private groups from challenging the turbines in federal court using the approach of the Beech Ridge Energy case. Should the Ohio Power Siting Board approve a project like the Buckeye Wind Project, Ohio may see its own federal court case on Indiana bats and wind development.
Read the court's December 8, 2009 decision in the Beech Ridge Energy case here or go to the Maryland District Court's webpage for the opinion and order at http://www.mdd.uscourts.gov/publications/opinions/Opinions.asp.