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"Everyone's comfortable with an oil derrick, but nobody understands what a turbine's going to look like or what it's like when it's whizzing on a windy day." — GREG LIAKOPOULOS, MCCARTHY TÉTRAULT LLP necessarily as confident about the new technology or the project proponents as they would be with established oil and gas exploration ventures, so they insist upon scrupulous due diligence and very detailed lease agreements designed to protect them against every foreseeable risk. But wind-farm leases frequently fail to meet lenders' requirements, accord- ing to Garth Anderson, a Calgary- based partner with Blake Cassels & Graydon LLP, who often reviews draft lease agreements on behalf of major lenders. For example, they may fail to include agreements that, if the tenant defaults on the lease, the landlord will not terminate it without notice to the lender and without giving the lender the right to cure the default or step in to get a new lease. Another safe- guard for lenders that is commonplace on commercial leases but sometimes overlooked in a wind-farm lease is an assurance that if the landlord has other financing registered on title and the landlord defaults on this loan, the other lender will still recognize the wind- farm lease. Routine though they may be for commercial real estate lawyers, clauses such as these incorporated into a lengthy document can easily over- whelm and confuse a farmer sitting alone at his kitchen table with a land agent or lawyer representing the com- pany proffering the lease — especially if the farmer had previously signed a three-page lease agreement with another agent. And the farmer may well have valid reasons to be concerned that his interests are not protected, accord- ing to John Goudy, an associate with Cohen Highley LLP in London, Ont., who is himself a part-time farmer and has represented landowner groups on numerous energy projects. Goudy says rural landowners could usually get good legal advice on wind- Goudy. But he notes the indemnity may not protect the landlord from the costs of being caught up in a legal action and it may not be worth much if the project proponent doesn't have the financial resources to cover the costs. The landlord should also be con- farm leases, if they sought it out, since the issues involved are certainly within the competence of most real estate law- yers. But the economics of a wind- farm lease is such that many farmers feel it is not worth paying legal fees for a deal that may eventually earn them a few thousand dollars a year, but initially offers very little financial reward. Furthermore, the deal is often first presented to them in the form of an option that will provide them with some compensation but may not lead to a long-term deal. The problem with this is that the option is often accom- panied with a lease agreement and the farmers do not realize that by agreeing to the option they may also be com- mitting themselves to the terms of the lease. Even though a wind-farm lease may not represent a financial windfall for farmers, it may still be quite attractive to them, since it will likely earn them far more money than they would make growing crops on a relatively small por- tion of their land, says Goudy. But, he adds, "it also creates a lot of risks that growing crops doesn't." There is the risk of liability in causing a nuisance to neighbours. Then there is the risk of environmental liability. It's essential therefore that the lease agree- ment include an indemnity to protect the landlord against these risks, says cerned about clauses that give propon- ents the right of assignment, which may mean that they would be able to flip the lease to another potentially less respon- sible developer. A further concern is how much land could be affected by the proponent's rights of access to the wind turbines and whether the wind- farm operations might interfere with the farmer's other uses of the property. Then there is the question of what hap- pens to the wind turbines in 20 years, after the lease expires and whether there are adequate provisions for clean- ing up the property. "In a lot of leases that I've seen, it's open to the proponent to just walk away and leave the thing standing there," says Goudy. Now that wind farms are cropping up more and more in rural areas, oppos- ition to them from neighbouring land- owners is becoming more common and better organized. Questions are being asked about their health impact, as well as ecological implications of their propensity to kill birds. Some of these questions cannot be answered without more research and practical experience with this relatively new technology. In light of all this, Anderson at Blakes suggests it would be sensible for project proponents to draft leases that account for these risks, quantify them, and provide appropriate compensation. "Then, at least, you would prevent the landlord from coming back later and saying 'I didn't know what would hap- pen.'" Freelance journalist and business writer Kevin Marron can be reached at kevin@ kevinmarron.com. www. C ANADIAN Law ye rmag.com NO VEMBER / DECEMBER 2010 25