Did we negotiate a ‘bad deal’ on our wind farm lease?
|Author: Travis Benn||Read time: 3 mins|
|Client type: All||Technology: all|
Ask Travis is a blog series where we answer some of our most commonly asked questions from landowners with the hope that they are useful to others, we hope that you find it useful.
Lots of wind farm landowners are haunted by this question. A few years ago, we talked to the property manager of a large company with wind turbines on its land. This manager had recently taken over responsibility for overseeing the company’s wind farm lease rental payments, following on from various former colleagues.
Payments had always been consistent and on time. The consistency was positive, but the performance of the wind farm never rose above the level required to trigger a “generation” or “percentage of turnover” rent payment, as originally anticipated when the lease was signed. We were asked us to carry out a wind farm rent payment review, since more than a decade had passed since the wind farm was commissioned. The company had always suspected they had negotiated a bad deal but had never carried out a full review to check.
First, we looked carefully at the terms of the wind farm lease agreement. We noted that the turnover rent percentage stated in the lease was much less than we would have expected for a wind farm of age, size, design, location and level of operational performance. Our independent review of the lease and the wind farm’s operational and financial performance identified that the wind farm would need to produce more than fifty years’ worth of electricity to trigger the anticipated turnover rent payments!
We contacted the company’s solicitors and requested all historical documents relating to the wind farm. We went through all meeting notes, emails, draft agreements, project plans, projections, correspondence and other documents, and we identified that a clerical error had been adversely impacting the lease for past seven years. Next, we contacted the operator of the wind farm and we worked closely with them to show exactly where and when the error had occurred. After a few months of further investigations, the site operator agreed to amend (i.e. rectify) the wind farm lease agreement to reflect the correct turnover rent rate, as originally intended by all parties.
Cases such as this one, highlight the importance of benchmarking wind farm leases against similar contracts to make sure similar errors don’t go undetected or happen in the future. We re-calculated the original turnover rent rates that would have been paid under normal circumstances if the error hadn’t occurred, and the site operator agreed to make a backdated payment to cover the full rent shortfall to date. Further, it was agreed that the landowner would now also receive turnover rent at the corrected rate going forward.
Our client was obviously extremely happy with the new arrangement. But was the deal inherently ‘bad’ to begin with? No. It’s simply important to carry out full audits of payments received from time to time, taking a team approach to ensure that the best rent is negotiated.
If you have any questions that you would like us to answer, get in touch and we will attempt to feature the answer in one of our future blogs.