Does your site operator have a right to renew their contract?
|Author: Travis Benn||Read time: 6 mins|
|Client type: All||Technology: all|
At the end of a renewable energy project lease agreement, there are a few different options available to landowners.
These options all depend on whether or not your solicitor opted out of the Landlord and Tenant Act 1954.
Not too long ago, a client of ours asked for advice on their lease. They hoped to change their current site operator, and wanted to know the options available for their wind farm.
A few things will impact our client’s success during negotiations. Firstly, they planned ahead.
When the client contacted us, it was three years before the end of the lease. This put them in a strong position to form a plan and put it into action.
Legally, there are strict statutory deadlines that need to be met if a landowner wants to end their lease, so it’s important to explore them early.
Let’s take a closer look at some scenarios that could play out for landowners in a similar position to our client – dependent on whether or not they’ve opted out of the 1954 Act.
You opted out of the Landlord and Tenant Act 1954
Landowners who opt out are in an exceptionally favourable position! They have full control over what happens at the end of their lease, and the site operator has no statutory right to remain.
The landowner can choose to:
· Stay with the current operator
· Choose a new operator
· Bring the project in-house
By opting out, you’re also in the best situation for negotiating terms that match your requirements. If the site operator wants to stay on your land, then they may be willing to pay a higher rent, or otherwise, help compensate for their ongoing use of the land for the renewable energy project.
You opted into the Landlord and Tenant Act 1954
This scenario is unfortunately far more likely. It’s the default position of renewable energy contracts, and landlords are often unaware their current site operators have an automatic, statutory right to stay on their land.
These are called ‘Non-contracted out tenancies’ or ‘Protected business tenancies’.
There are two key options in this situation:
The landlord agrees to a renewal
You can choose to allow the current site operator to stay. This is called an unopposed renewal.
The landlord can adjust rent rates to meet current market values. If negotiations can’t be reached, then an application can be made to ask the courts to determine the appropriate market rent. The court can then issue the new lease, having a maximum duration of just fifteen years.
If the parties are able to reach a negotiated solution, the lease could be more than twenty years in length.
The landlord opposes the lease renewal
Meanwhile, if the landlord doesn’t want to renew, they’ll need to apply to the courts and request an eviction of the current tenant. There are a few common grounds under which a landlord can do this, including:
1. Unpaid rent
2. Breach of contract
3. Intention to redevelop the site
4. Intention to occupy the site themselves
The cheapest ways to navigate this problem are via points 1 and 2. The latter two can be expensive, leaving the landlord liable to compensate the tenant financially.
Understanding the time limits
There are strict time limits to serve notice to the site operator. Usually, this is expected around 6-12 months before the lease expires. If this time limit passes you by, it may soon be too late to oppose the renewal.
Landlords opposing a renewed contract need to state their reasons clearly, so it’s important to carefully consider all the options ahead of time as the reasons given cannot be subsequently changed.
What about our client?
Returning to our client’s scenario, their reasoning (choosing to redevelop the site themselves) is strong. This is considered valid grounds for opposing a lease renewal.
The problem is, being able to demonstrate this reasoning to the court with firm, settled and realistic plans.
Plans need to be concrete, with no significant obstacles in the way. A full breakdown of costings is required. There need to be sufficient funds available to carry out the proposed works.
If our client could obtain planning permission for their redevelopment in advance, this would be a significant bonus. During the assessment period, the court will look carefully at evidence like this, and make a decision accordingly.
Our client is still in the process of organising their renewal, and we look forward to publishing the successful outcome. Their story isn’t yet complete, but it shows how important it is to plan ahead and work towards the solution you want as a landowner.
Landowners and site operators can come to amicable agreements at the end of a lease , but they both need to show flexibility and understanding of one another’s situation.
If negotiations break down, they can ask the courts for assistance, though most lease renewals thankfully never reach this point.