High oil prices and offshore drilling issues, such as the oil spill in the Gulf of Mexico, continue to act as catalysts to those seeking sustainable alternative energy sources for the future. Wind farms have been a major focal point of this effort. As of the third quarter 2011, wind farms in the United States are now producing more than 40,000 megawatts of power, with reportedly 90 additional projects under construction. Although the current output accounts for less than 5 percent of the electricity generated in the U.S., state renewable energy mandates could continue to escalate that percentage.
Although wind farms were traditionally considered a phenomenon of the west and southwest, 37 states now have installed at least some utility scale wind power. The proliferation of wind farms has been accompanied by an equal proliferation of land title issues. The Legal Description contacted experts in the field to examine the issues title insurers need to address when insuring these developments.
Some basic facts
Right now, wind farm development is happening all over the country, but the industry ebbs and flows with the availability of federal tax credits and incentives given to the developers of wind farms.
Utility scale wind farms usually involve many sections of land, perhaps 20-100 sections of land. The developers seek easement agreements with each of the landowners within the boundaries of the project.
When a wind farm developer or utility company seeks to develop a wind farm, they will take a few different approaches to getting access to the land.
Kathleen Law, of the Des Moines, Iowa-based firm of Nyemaster Goode P.C., said sometimes developers will take an easement over the whole property. For instance, if a landowner owns a quarter section of property, some developers take a blanket easement over the property that allows them to put wind farm improvements wherever they want.
She said the more common practice in Iowa is for the developer to carve out where the actual improvements will go and have access easements and easements to place the turbine on the property and any collection lines or access roads. To do that they can either do a legal description for that or have an as-built survey done that sets the footprint of the physical easement that actually affects the land. Then they take out a blanket easement just for things like wind non-obstruction or noise, shadow, light and flicker over the entire quarter section. They will only have the right to have a physical presence on maybe three or four acres of that quarter section.
The title insurer’s role
Title insurers often get involved in wind farm development projects fairly early in the process. Louis Canaras, a senior underwriter at Stewart Title Guaranty Co., said often, developers come to Stewart early in the development process to ascertain who actually owns the property.
“It makes no sense to enter into any kind of an agreement, whether it be a lease agreement or option, without knowing who the record owner is at the point in time that they want their documents executed,” he said. “We often start out with a direction to determine who owns the land in fee simple initially. Thereafter, we provide full commitments and pro formas which eventually becomes the full policy.”
Cheryl Cowherd, underwriting counsel for Agents National Title Insurance Co., said title insurance policies issued on wind farms are usually owner leasehold policies or insurance of easements that include a large number of tracts.
Canaras agreed, stating it can take anywhere from nine months to three to four years between the time the developer starts working with the title company and the time the policy is issued. “We are able to accommodate the needs of the various developers and we work with them as to their time line,” he said.
Options to lease
With all of the time it takes to study the land to make sure it is suitable and the additional time it takes to raise capital to put the turbines in place, many developers enter into option agreements before entering into the actual lease or easement agreement.
“The option agreements may be problematic for the developer because during the time period between the execution of the option agreement and the exercise of the option was entered into and put of record, there may be intervening matters,” Canaras said. “A lot of developers don’t realize that the intervening matters which may affect their interests require curative action. For example, a mortgage that is put of record requires a subordination agreement or a nondisturbance agreement.”
Change in use issues
Because much of the land that is suitable for wind farm development is in rural areas, there could be certain restrictions in the possible uses of the land.
“Some of the things that come up that title insurers need to specifically look for are documents of record that might prohibit a change of use of the property,” Law said. “Most of these properties are agricultural land. One of the big things that differs from some other transactions is that there may be conservation agreements or covenants that are in place that require the farmers or landowners not to change the use of the property.”
Law noted that agricultural properties could have federal tax liens on the property, perhaps deferring estate taxes as long as the use of the property is not changed. This means title insurers need to look to see whether the wind farm lease would be considered a change in use that triggers the estate tax coming back into effect.
Cowheard also noted that certain issues come up depending on the type of transactions.
“Most wind farm transactions are either structured as easement estates or leasehold estates,” she said. “There may be zoning or use issues, although, since the property use is usually crop or pasture, there may not be zoning concerns. But, the title agent should be aware of such possibilities. In addition, I have not yet seen any specific restrictions or nuisance suits regarding wind farms, similar to what an agent may see when searching property used as a chicken or hog farm, but as wind farms become more prevalent, title agents have to deal with these issues.”
Randall Light, of Steptoe and Johnson PLLC in Bridgeport, W. Va., said he had a few situations in which the developer had to agree that a wind turbine was not a commercial use of the property because commercial uses were prohibited in the development that had been laid out long ago.
The importance of surveys
When preparing to insure a wind farm, title insurers need to take a careful look at the survey of the property to see all of the easements, pipelines and roads running along the property to ensure that the wind farm turbines, cables and substation will not be adversely impacted by these easements.
Law said curative actions are sometimes needed, depending on where the actual windfarm improvements will be located.
“When the title insurer reviews the survey, they need to make sure that there is access everywhere and the turbines are all connected,” she said. “They have to make sure there is contiguity. The surveyor will swear to [the fact] that there aren’t any gaps or overlaps between all of the properties that comprise the windfarm project. That is extremely important because of the underground cables that run from turbine to turbine and from the substation to the turbines and eventually to where it enters the grid.”
Canaras agreed that the survey is important.
“Usually the title insurer will require assurances from the surveyor concerning contiguity so they can issue a contiguity endorsement. Additionally, we want to see the easements and particularly if the survey is going to show that somehow the development is going to cross those easements,” Canaras said. “And then the developer is going to have to go out and acquire crossing agreements necessary for the development. And of course we would want to see those documents.”
Canaras said the title company will need to see the survey, showing the placement of the turbines and transmission lines, etc. and the footprint of prior easements, etc. to see whether some type of curative work is needed. Crossing agreements must be entered into on almost every development Stewart works on. He recalled one unique project where the transmission line was 80 miles. Additionally, some of the transmission lines crossed around government land that had missile silos located on them. The developer had to develop the plan to ensure that the wind farm was not going to be anywhere near the military complex.
He also spoke to the contiguity issue, noting that new surveying standards have excluded the statement with regard to contiguity. However, Canaras said the title insurer generally does still get a contiguity statement within the notes of the survey. He said developers have also gotten savvy, requesting contiguity statements from surveyors.
“So the developers have taken a stand, saying they want that contiguity statement in the certification,” he said. “Contiguity is a big issue, particularly because of the number of landowners comprising these projects. Those lands have to be contiguous to one anther or else you can’t have a continuing stream of development.”
Light also noted that there could be citing issues. For instance, the towers themselves could be on one piece of property, but the blades could extend onto another.
“We had to actually go back and pick up some easements from adjoining landowners because they moved the towers a little bit and the blades were sticking two or three feet over someone else’s property. We had to go back and get some easements for the blade swing,” he said.
Mineral problems
Mineral rights can also cause problems for developers and must be addressed before the title insurer can insure the wind farm developer’s rights.
Canaras said one of the things they look for when they discover someone owns the mineral rights is a nonproduction affidavit from the current landowner. If the landowner or fee owner has not exercised those mineral rights, he said Stewart would try to ascertain whether there has been any development or any pooling of any of the interests that would affect the property. If there is ongoing production, he said the company may have the developer enter into a mutial noninterference agreement.
The industry will undoubtedly face these and many more issues as the wind farm industry grows.