Option to Lease Archives - Dennis Beaver

Know this before signing a ‘letter of intent’

Dennis Beaver — Fri, 22 Mar 2024 19:55:50 +0000

March 22, 2024 • By Dennis Beaver

Arizona readers, 80-year-old Sandy and Jim, sent this email with an offer they almost accepted:

“We own 100 acres of land ideal for a solar farm and just received a letter of intent (LOI) from a San Francisco company wanting to lease it.

“We were about to sign and return the document when we came across your article ‘Leases of vacant land for solar farms pose great risks to owners.’ What do you think of this LOI? Thanks.”

Hanford real estate attorney Ron Jones — who helped me with that earlier article — explained the elements of a letter of intent.

What is a letter of intent?

“It outlines the basic terms of a proposed contract, lease or option, sent to the property owner in hopes that an eventual agreement will be accepted. Consider it a knock on your door with an ‘I am interested in your property on these terms.’

“The property can be anything from industrial machinery, a million dollar yacht, a business, employment, to land.

“In most cases, a letter of intent is not an enforceable contract, but some of its specific contents might be. So, if you receive one, and are tempted to sign, it would be a mistake not to have it reviewed by a lawyer who can clarify points you might not fully understand,” Jones says.

So, consider an LOI as a “cut to the chase,” designed to benefit the offeror by saving the time and expense of drafting a tailor-made agreement for someone who might be uninterested in selling or leasing the property.

Watch Out For These Clauses in an LOI

Jones cautions, “An LOI can lead to some real problems, especially if it contains language that was in the one sent to your readers.”

For example:

Confidentiality

“This agreement will be treated in confidence and no disclosure will be made without Tenant or Landlord’s prior written consent, except as required by law.”

Exclusivity Agreement

“Owner agrees that until the earlier of (a) signing of a lease, or (b) 300 days after the execution of this LOI have passed, the property shall be withdrawn from the market and owners will have no discussions or negotiations with any third parties concerning its possible sale, lease or the offer itself.”

Jones points out, “This means that the couple may be forbidden to discuss the terms of the LOI with their own real estate advisor, and the property will be in limbo for almost a year. If better offers come in, the owners can’t discuss them. This is over-reaching.”

It’s Now or Never

A cover letter to the LOI gave two weeks to respond or the offer would lapse, resulting in the hoped-for response: “They are offering us a great deal of money per acre and we certainly don’t want to let this thing die on the vine,” Jim wrote.

Jones’ take? “The solar farm developer is putting pressure on the couple and it may be considered elder financial abuse since they know their age. It is pure nonsense because the land isn’t going anywhere. They should contact the company and say, ‘We understand you would like this signed quickly, but we need time to run it by our family lawyer.’ It is virtually certain they will agree and just ask to be kept informed.”

He adds, “If the response is, ‘We need it by that date or all bets are off,’ then, they’ve just done the couple a real favor because these guys can’t be trusted.”

Unreasonably long due diligence time frames

Due diligence is designed to lessen risks to the party financing the project and to discover the potential impacts on the site. This may require input from civil engineers as well as archaeological, environmental, water, land and title experts.

Typically, this takes anywhere from eight to 18 months.

Jones underscores, “Before committing to a longterm relationship with a developer, the owners need to conduct their own due diligence to be certain they are dealing with a legitimate company that has a good reputation. Therefore, research their online presence, including reviews, serious complaints, and get references from others who have leased to them.”

Bottom line: It’s always a good idea to consult with a lawyer if you receive an unexpected LOI.

Dennis Beaver Practices law in Bakersfield and welcomes comments and questions from readers,
which may be faxed to (661) 323-7993,
or e-mailed to Lagombeaver1 – at – Gmail.com.

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Looking into Leasing Solar Panels? Think Twice

Dennis Beaver — Fri, 23 Feb 2024 20:06:27 +0000

February 20, 2024 • By Dennis Beaver

“I am the CEO of an accounting firm that is looking into leasing a solar system for our 8,000-square-foot office building. Some of your articles on solar have been very negative as to leasing options. We have met with solar salespeople who have given us energy-saving projections that seem reasonable, as well as the impression that leasing is the best way to go. Are you still to opposed to leasing these systems, and if so, why? Thanks, ‘Mike.’”

Yes, I am strongly opposed to leasing solar, and I’ll tell you that not a week goes by when I have not heard via this column from businesses and homeowners who are pulling their hair out and going crazy while trying to obtain service on their leased unit because their seller went out of business, as thousands have across the country. For a real eye-opener, I recommend reading Time magazine’s September article Rooftop Solar Power Has a Dark Side.

But, first, let me tell you about Brenda, Chris and his mother’s 2023 Christmas that never really happened. Back in 2017, the couple moved into his mother’s home to help care for her ailing husband. They were looking for ways to save money and met with a sales rep from Vivint Solar, “who showed us realistic-appearing projections of huge energy savings on a system we could lease from them. There was nothing due up front: They would install, maintain the system — which they owned — and we would pay them for the energy produced over 20 years.

“We were promised prompt service if anything broke down, and all worked fine for about two years, and then the inverter failed — as they often do. Despite repeated calls for service, we were ignored for months, paying the normal rates of our expensive utility.”

Surprise! You owe us $4,000!

As Chris explained, every month, Vivint, which was taken over by Sunrun in 2020, would make automatic deductions from his bank account to pay for the energy the system produced. “The amounts varied greatly,” he pointed out. “And then, on December 15, we got a bill for over $4,000 with no explanation, no justification beyond the statement that they had failed to properly make deductions over 18 months.” Chris confirmed that they did make monthly deductions over the 18 months, but this $4,000 was in addition to those charges.

Request for proof falls on deaf ears

“I asked them for a detailed accounting (of what the extra charges were for), which they refused,” Chris said. “Then someone from their collections department phoned and insisted on large payments, again refusing to justify the amount. We had no Christmas, no presents, afraid to spend money. That is when I found your articles, and we spoke.”

In our phone conversations, I learned that Chris is an unemployed agricultural worker, and Brenda is off work, being treated for breast cancer. None of that mattered to the bill collector. So on January 26, I emailed Sunrun’s general counsel, with a cc to the company’s media department, simply asking them to look into this and work out something fair. Later the same day, Chris phoned and told me, “Mr. Beaver! They are forgetting the entire balance! They confirmed it via email.”

So, hats off to Jeanna Steele, Sunrun’s general counsel. This was a powerful example of the power of the press and an attorney who did the right thing, the fair thing. So, in my book, Jeanna is a real gem.

So, how much energy savings have Brenda and Chris realized all these years? “Around a thousand dollars a year, and it wasn’t worth all the recent grief,” Chris said.

Why leasing is often a lousy idea

Let me be blunt. If you can buy a system with cash or obtain a loan for a solar system at a reasonable interest rate, owning solar panels directly is the way to go, rather than going with a leased system.

Also, if there are tax breaks and incentives — which just got nuked in California, and sales are down 82%, according to CalMatters — they are not available with a lease.

Next, selling a property that has an active solar lease is often difficult to impossible, as the buyer must agree to assume the remaining contractual obligation. I have never spoken with one real estate agent who’s had anything good to say about trying to sell a property with a leased solar system.

Finally, I do not want anyone to walk away from this story thinking that I oppose solar energy in general. Quite the contrary! Friends who own their systems generally are delighted with the energy savings and budget for replacement of inverters and backup batteries.

There is one more consideration: your age. Will you live long enough to recover the out-of-pocket cost or complete a 20-year lease? Do you want to burden family with that “brilliant” solar idea?

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Leases of vacant land for solar farms pose great risks to owners

Dennis Beaver — Sat, 10 Jul 2021 18:10:32 +0000

July 9, 2021 • By Dennis Beaver

Today’s story will be of special interest to anyone who owns acreage —typically agricultural — in areas of the country which receive plentiful sunlight or wind, ideal for the construction of a solar or wind farm.

Unless you are careful, some smooth talking representative of an energy farm developer could have you walking into quicksand.

Never, never, never trust the nice people from these companies to have your best interest in mind. They do not, as “Dr. Jim” discovered.

The Baltimore surgeon owns 20 acres near the town of Tehachapi in eastern Kern County, and was contacted by the solar subsidiary of a major Asian electronics manufacturing company. They sent him an “Option to Lease” agreement, told him it was “standard,” requesting that he sign it.

Fortunately, recognizing his lack of knowledge in this area, Jim contacted my office.

It is their business ethics and hideous customer relations that turns my stomach. Here is a telling example:

Some years ago they and other manufacturers began selling Smart Televisions with Skype that required purchasing a $49 webcam only usable on their TVs.

In 2016, after thousands of customers from around the world had purchased their TVs and webcams — because of Skype — the manufacturer removed the Skype app, would not provide a driver so that you could use the camera on some other device, and refused to offer a refund.

It was a total rip off, and I wrote about it in my column. The company could not have cared less.

Real Estate Attorneys Look at Option Contract

I ran this option contract by two real estate attorneys, each with years of experience, Fawn Dessy of Bakersfield, and Ron Jones from Hanford.

“An option is a contract that gives the optionee a right to do something – such as buy or lease land – for a specified period of time,” Dessy explains. “It does not give you an interest in the property, only the right to lease or buy it later. For projects as complex as solar or wind farms, options may last for up to two years, allowing time for due diligence before work is started.”

Jones point out, “There is nothing simple about an option contract for one of these projects, and the devil is in the details – details which can hurl the landowner into horribly expensive litigation.”

I referred Jim to Ms. Dessy, and, after reading the contract, she said, “They are passing this off as very typical and fair. It is anything but! It is a complete abomination and landowners across the country need to be extremely cautious if a ‘land agent’ comes calling. I have been in law practice 42 years and have never seen anything like this. It is just horrible.”

“They are so smooth about how ‘this is the way it’s done and we’re are going to make you a lot of money.’ But the way it is worded could easily get you sued and this company, in their option agreement, has no obligation to protect you.”

What’s wrong with the agreement?

Dessy and Jones listed a few of the many dangerous flaws in the agreement:

1 – Their term of five years is excessive. At most two years is adequate to explore soil, environmental, zoning, cost to put in utilities, etc.

2 – They intend to begin pulling building permits before exercising the option and actually lease the property. This is completely wrong.

3 – Leasing the property, they want the owner to remove the land from farmland preservation which gives a significant tax break. This is totally wrong.

4 – There is no requirement for workers compensation or liability insurance, no duty to hire licensed contractors, or bonding. This puts the landowner at significant risk of suit for injuries that could occur on the property even before the option is exercised.

5 – These types of developments predictably lead to lawsuits against owners. The contract does not address this likely event, meaning that attorney fees will be at the owner’s expense.

6 – One of the most clearly misleading paragraphs states, “This agreement creates a valid and present interest in the property in favor of us.” This is completely contrary to law. An option is merely an offer; it does not give the optionee an interest in the real property.

Both attorneys offered these cautionary words of advice to anyone approached by a company wanting to turn their vacant land into a solar or wind farm: “Seek the advice of experienced real estate counsel at once.”

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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