Option payments of $250 an acre while a 4 year interconnection study runs

Question

140 acres, a 345kV line crosses the northeast corner, and the parcel sits about 8 miles off an I-20 interchange. A developer's land team came in with an option: $250 per acre per year for four years, all payments credited against a purchase price of $45,000 an acre at exercise, with two one-year extensions at $400 an acre. Their stated reason for four years is the interconnection queue study.

So I'm holding a $35,000 a year option payment against a $6.3 million potential sale, and I'm out of the market for up to six years. The thing I actually need to understand is what I'm being paid for. If they file the interconnection request during the option period, does that queue position attach to my land or to them? If they walk in year five, am I holding a parcel with a mature queue position, or nothing?

Rena Expert · Accepted Answer

The interconnection request belongs to the applicant, not to the acreage, but it's tied to a named point of interconnection and a defined site. Whether it can be assigned to you or to a later buyer depends on the tariff and business practice manual of the transmission provider or ISO that holds the queue, and several of them restrict transfer or require the original deposits and study costs to follow. Get the answer in writing from that provider before you sign, and get the option agreement to say explicitly what happens to the request, the deposits, and every study report if the option lapses. Left silent, you get nothing and they keep a study you effectively funded with your holding period.

On the economics, $250 an acre against $45,000 an acre is roughly 0.6% a year to tie up your parcel. That's low for a six year window. Payments crediting to price is standard and does not compensate you for the option, it just moves your own money around. I'd push on the annual step-up, on a non-credited portion, and on a firm outside date with no further extension.

Two things you haven't raised. First, taxes. If the parcel carries an agricultural or timber assessment, a change in use or a recorded option can trigger rollback or reassessment in some states, and the rollback bill is yours, so ask your assessor and a tax professional about your specific state before you sign. Second, entitlement residue. If they take the rezoning fight public and lose, you get the parcel back carrying a documented record of organized opposition, which shows up the next time anyone applies. Ask for the right to approve public filings and hearing schedules, or at least to be notified before anything is submitted.

renee_dubois · Answer

Six years is two full cycles of anything I've ever owned. Even if the price is right, the thing I'd be negotiating hardest is the outside date, because a developer with two extensions and a credited option payment has almost no reason to hurry.

brandonlee36 · Answer

@rena-expert's point about the study reports is where I'd spend the negotiation. A completed system impact study on your specific point of interconnection is a document with resale value to the next developer, and if the option dies you want a copy in your file even if the queue position itself can't move. Ask for a delivery obligation on termination.

tylerbrooks9 · Answer

What's your alternative use for the 140 acres over those six years? If it's cash renting for pasture at a few thousand a year, the option money is a raise. If you had a real plan for the land, it's a cheap handcuff.

Option payments of $250 an acre while a 4 year interconnection study runs

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