Taking a team approach: advice for independent landowners renewing their lease
|Author: Travis Benn||Read time: 8 mins|
|Client type: All||Technology: all|
When an independent landowner is ready to renew their renewable energy contract, it’s always best to seek professional advice. These contracts have often been in place for around 30 years, and the competitive environment has drastically changed since the terms were last negotiated. Usually, those involved with renegotiating are not the individuals who were involved with the project’s original setup.
We’re here to help ensure you get the best advice possible before any renewal decisions are made! Calling on the expertise of your land agent, solicitor, and accountant will also reduce the obstacles and stress involved in the renewal process.
So, who are the key players independent landowners should add to their team?
Take a look at the video below where I discuss working with professional advisers.
Solicitors should be instructed a few months before the lease comes to an end and should serve a notice, either telling the tenant the lease is up for renewal, or that the landowner has decided not to renew the lease.
There are deadlines involved with both options, so having a solicitor available ensures that landowners are on top of all their legal deadlines. Solicitors can also review and draft a new lease, considering all new regulations which may not have been applicable at the last renewal/start of the lease (potentially up to 30 years ago).
All parties need to agree on the key terms and definitions in the lease, which a solicitor can also handle. They will also need to ensure that the new lease has been opted out of the Landlord and Tenant Act 1954. This is to ensure that the landowner has the option to either end, bring the project in-house or carry on as they are. It means they will not be tied into anything more than the current contract.
A solicitor will also be able to help the site operator by providing site plans that are land registry compliant and exchanging and registering key documents.
A land agent
Projects often have planning permissions, particularly if they are large-scale, commercial energy projects.
Any project with wind turbines that are over 100ft high will have been through a stringent planning permission process to obtain the necessary approvals. Land agents can oversee this process and ensure all documents are in place.
Often, land agents can apply for all the necessary permissions needed and work with landowners to ensure that these are done correctly and within deadlines.
Land agents can also agree terms with the site operator and the timetable for the project's build extension and decommissioning.
They would look at terms that need to be agreed upon, including the rent. Land agents should have good knowledge of current market rents. They should know what other landowners are being paid across the country for similar sites, so landowners are then able to discuss rent options i.e. fixed rate, turnover percentage, multiple of outputs, or a hybrid.
Land agents can also help with practical steps, such as if rents should be linked to consumer or retail price index when rent reviews take place, and how frequently rent will be paid.
There are numerous ways land agents can help. Ultimately the landowner is responsible for restoring the site in accordance with the planning conditions, therefore it’s important to ensure that your site operator has sufficient funds ringfenced, so the landowner doesn’t have to cover the cost of decommissioning themselves, in the event that the site operator cannot meet decommissioning obligations.
Land agents should also look at the market, noticing any trends, and exploring what new clauses are being added to the relevant type of lease in question.
How a contract should look now is likely to be different from how it looked 20 or more years ago when the previous lease was drawn up.
From our experience, accountants are the most underused professional advisers during the renegotiation process. Accountants are able to help firstly by reviewing the project’s land rents. This needs to be a full payment audit (rather than just checking to see if payments have been made in preparation for any lease renewal).
An accountant can review how much energy has been generated month on month and then ensure that the correct rent has been calculated and paid.
Overall, your accountant should look at the financial viability of the project, including who the new tenant would be and if they are financially secure.
Here are some steps an accountant can take to put things in motion:
- Obtain the power purchase agreement from the site operator.
- Review all electricity generated based on the half-hourly electricity data.
- Re-calculate each income stream payable under the terms of the power purchase agreement.
- Reconcile the total amount payable to the amount received from the site operator.
- Reconcile these payments to the amounts due according to the terms of the lease agreement.
- Reconcile the amounts to historical rent statements, bank payments received and the payments recorded in the site operator’s company accounts.
- Calculate the rent payable for each month divided by the total amount of electricity generated during that month (i.e., the income per unit of electricity generated).
- Compare this to the monthly rent payable for the previous years, to identify any significant or unusual payments for further investigation and/or discussion with your site operator.
Accountants can greatly assist with the financial planning of the landowner, including any tax implications of how they would enter the new lease, ensuring optimal tax efficiency.
If the landowner is considering bringing the project in-house, then the accountant will be able to do a cost-benefit analysis of the plans to see if it is commercially viable to do so and to demonstrate to the courts that the landowner has sufficient financial resources available, where a landowner wishes to terminate a protected business tenancy.
Renewing a contract can be complex, so it’s essential to have expertise on hand to help make the job a little easier. With your professional advisory team, independent landowners can ensure a smooth transition to a lease renewal or a new start.
Regardless of the kind of renewable energy project; be it wind, solar or hydroelectric, there are always ways to use the talents of your advisers to your best advantage. Don’t be afraid to ask for the help you need during negotiations and surround yourself with people who can provide you with the insights necessary to succeed.
Not sure how to get started? If you’re not sure about any aspect of your renegotiation, get in touch! We can work with your existing professional advisers (or alone) in helping you achieve the result you want.