Pitfalls of Severing Wind Rights
With the rapid acceleration of wind energy development in America, some landowners are looking to “cash out” of land ownership and retain the wind rights for the opportunity to “cash in” if future wind development occurs on their previously owned land. But this is not as simple as it might sound. There can be pitfalls involved with the severing of wind rights for both the landowner and the wind energy developer.
The big question right now in the wind energy arena has to do with the ability of a landowner to severe the wind rights from the surface rights. For many decades oil, gas and mineral rights have been able to be severed from the surface rights. Precedence in regards to sub-surface rights has been set through much trial & error, legal procedures and legislation. The push for renewable energy in the USA and around the world has accelerated the growth of wind farms at a rate faster than laws can be established for wind rights. This leaves landowners who choose to sell their land with the question “can I retain the wind rights?”
Simple logic seems to imply that a landowner could sell a property and retain both the oil rights (sub-surface) and wind rights (above surface) to be able to capitalize on the income derived from any future drilling or wind farm development. After all, landowners have retained their oil rights for decades. But when you start to look closely at all the possible scenarios that can take place, things become more complicated when it comes to any rights retained above the surface of the land.
When a developer works with a landowner to construct a wind turbine, they enter into a contract that gives the developer various rights. These rights include: access to the land, rights to construct/operate the turbine and any related equipment/facilities on the property. Of course the developer is also granted the rights to the wind resources on the property. The landowner has the ability to grant all of these rights to the developer since he/she owns the surface rights. The developer will be using the surface for all access to the initial construction site and to be able to operate and service the wind turbines in the future.
But what happens when the owner of the surface rights is not the same person as the owner of the wind rights? Can a landowner sell the property yet retain the rights to the air above the surface? This is uncharted territory in most states. Several states have passed statutes prohibiting the severance of wind rights or wind interest from the surface estate. These states are Nebraska, North Dakota and South Dakota. The state of Colorado is considering passing similar statutes but any decision has been put on hold for the time being.
One issue that raises its head with wind right severability has to do with which estate is the dominant estate. In most instances, the mineral estate is the dominant estate. The owner of the mineral estate has certain implied rights to build roads, put up tanks, electricity etc… If wind rights are severed, then a priority needs to be established. If oil drilling were to occur first on the property, then any wind turbine construction would be hindered because normal operation involved with the construction of the turbine could not take place as is customary because of the existing infrastructure of the oil drilling operation.
Another issue that arises has to do with binding the landowner, who owns the surface rights, to non-interference covenants. Can the landowner construct buildings or plant trees that would interfere with future wind energy development? Will any structures or vegetation obstruct the flow of the wind? Are farmers who lease the ground for agricultural operations or sportsmen who lease the ground for hunting operations bound to and required to honor the covenants of the wind lease? These are questions that are not readily answered. When a landowner tries to severe the wind rights from the fee interest in the property, there is a danger of shrinking the rights of the surface owner, the wind estate owner or both. This also creates major conflicts among all surface owners.
If a landowner severs wind rights from the surface rights, the market price for the property could be lower than if the wind rights stayed with the land. Of course the price difference between land sold with the wind rights and land sold without wind rights should be greater in areas where there are existing wind farm operations in development.
Wind energy developers may choose to overlook locations that have the wind rights severed from the surface rights to avoid possible conflicts between the owners of surface rights, sub-surface rights, wind rights and the developer. Developers will more than likely choose the path of least resistance and headaches. Performing due diligence is of the utmost importance for the developer as they prospect for new wind farm locations.
Landowners who choose to sell their land and retain the wind rights should take in consideration all the possible challenges before proceeding. There is no guarantee of future wind development for the landowner who sells land and retains the wind rights in a state that allows the severance of wind rights. Developers will steer clear of land that poses possible challenges. This ultimately could lead to the owners of wind rights not actually owning anything of value.
About the author: Jeff Phelps is a Real Estate Consulting Specialist for Cabela’s Trophy Properties and is a licensed Nebraska Real Estate Salesperson with Cabela’s Ventures, Inc. Jeff is also a Realtors® Land Institute Accredited Land Consultant candidate.
Cabela’s Trophy Properties is a worldwide network of recreationally oriented Land Brokers with regional expertise in Ranch and Farm, Timber, Waterfront, Auction and Landowner Services. We are a proud supporter of the Realtors® Land Institute. www.cabelastrophyproperties.com Contact Derrick Volchoff, ALC email@example.com