What If A Lease Ends Without A Formal Agreement?
|Topic: wind farm extension||Read Time: 7 mins|
| Landowner type:
Independent landowners | Institutional landowners
|Energy: Onshore wind|
Have you ever wondered what happens when a renewable energy project lease ends without a formal agreement in place? From the challenges you might face to the benefits of a formal contract, this deep dive has everything you need to know about wind farm extension.
Are you negotiating a wind farm extension but currently have no formal agreement in place for when your lease ends? Well, it’s a good thing you’re here!
As renewable energy project leases typically run for 30 years, plenty can change in the interim, which impacts land rents and project developer costs. When you consider changes in family circumstances and restructuring within organisations, you won’t want to end your lease without a formal agreement in place.
If your project has been ticking along smoothly, it may surprise you to learn that your lease is ending. So, your site operator coming to you about a renewal might come as a shock.
We always encourage landowners to stay on top of their project renegotiations and plan ahead on their lease renewals. This way, they’ll be able to take advantage of changes to the market since a lease was first negotiated and be in the strongest position possible.
What Challenges Do Landowners Face With a Wind Farm Extension?
When the time comes to renew your lease, you may face several challenges if you have no formal agreement in place. Not only will you feel like you have limited options as you’re heading toward renegotiations without a plan, but unclear terms can make things difficult.
Many landowners feel like they’re stuck between a rock and a hard place if their lease ends without a formal agreement in place. To be in the best position for negotiating and to avoid any last-minute information gathering and planning, it’s always best to plan for negotiations sooner rather than later.
For this reason, we always recommend getting in touch with a team of experts that can help with this and early on and help you make the right decisions before your lease ends.
Your existing lease will clearly outline the legal basis of your current site operator occupying your site. You should also have an understanding of the other terms of the project. But what happens when your lease comes to an end without a formal contract? Do the rules remain the same, or will they change completely?
There’s truly no way of knowing with certainty until a new formal agreement has been reached.
No inflationary factor
If you initially had no inflationary factor built into your lease, you may not be getting the best financial return from your wind farm. It’s important that the rent you receive going forward accounts for inflationary increases, or you’ll be getting a real-term cut each year (for up to 30 years!).
If your lease is set to come to an end without a formal agreement, you must also consider the cost of inflationary losses whilst the lease remains unnegotiated.
If your lease ends without a formal agreement, there’s a chance that your existing terms will roll over. But if you didn’t opt out of the Landlord and Tenant Act of 1954, your site developer will have unopposed renewal if they don’t have rent arrears and haven’t breached their contract.
You’re in a much stronger position if you’ve opted out of this act, as you can then decide what to do with your land when a lease ends.
Regardless of your terms, having a formal contract in place will make those next steps far easier. If you want to learn more about the importance of the Landlord and Tenant Act, we have an in-depth review right here that will help you avoid any pitfalls.
The Different Scenarios That Landowners Should Know About When Leases End
When your lease ends without a formal agreement, two different scenarios might play out.
Tenancy at will Wind Farm Extension
The tenancy at will is essentially when a tenant remains on the land with a landowner’s consent. Either party can then give notice at any time to end the tenancy.
It’s typically used as a temporary measure during renegotiations. But it can also be created after the current lease expires when a formal agreement isn’t in place. Some landowners won’t appreciate this arrangement, but it does provide an easy step toward renegotiations without an abrupt close.
You’ll also need to consider the fact that this gives the site owner exclusive possession of a site. In these cases, a landowner would be prohibited from entering the site and wouldn’t be allowed to give another operator access. As this wouldn’t suit some landowners, you’ll want to think carefully before agreeing to this tenancy type.
Periodic tenancy Wind Farm Extension
The other option would be a periodic tenancy which is a rolling tenancy with no defined end date. This tenancy usually kicks in if negotiations stall and the terms of a lease can’t be agreed upon between the landowner and the site operator.
It allows the current site operator to remain onsite after a lease expires and can be devastating for the landowner. This is because the site operator has the chance to acquire a protected business tenancy which gives them the power to remain onsite indefinitely.
If you’re looking to change the terms of your tenancy or get a new site operator on board, this could be quite challenging. Removing the site operator tenant becomes extremely difficult, more so if the site operator has been occupying the land for over 14 years.
In these cases, the landlord needs to compensate the operator twice the rateable value of the premises! These costs can be in excess of £250,000 for some renewable energy projects. This is to compensate the current site operator for the inconvenience and cost of leaving the site.
So, if you’re planning to let your lease lapse and want to change your site operator, you’ll want to tread very carefully.
Why Is a Formal Wind Farm Extension Agreement So Important?
As you can see, being in control of your lease is crucial if you want to avoid trouble tenants that are very difficult to remove. It’s possible to grant the current site operator a temporary ‘licence to occupy’ your site if you haven’t planned ahead. This would give landowners permission to access the premises and carry out any relevant activities relating to their wind farm extension.
If at all possible, it’s best to end your lease with a formal agreement. This gives landowners superior control over their site, keeps their options open, and prevents any disruption to a renewable energy project. Plus, it’s always a good idea to avoid going through a lengthy and expensive removal process.
In our experience, letting your lease lapse without a game plan causes a host of difficult problems which can easily be avoided with a bit of forethought.If you’re remotely concerned about renewals, just get in touch with a team of experts who will happily explain your options.
What Should Landowners Do If Their Lease Is Coming to An End?
1: Get Expert Advice
Before you let your lease lapse, it’s important to seek expert advice from a professional team. Legal and finance teams will have market expertise that landowners simply don’t, allowing them to review changes that might impact them. Plus, it takes quite a bit of the onus off landowners when it’s crunch time.
2: Review and familiarise yourself with your lease agreement
The most important thing to remember as a landowner is to keep on top of your deadlines and lease dates. It’s far easier to renegotiate before your lease has lapsed, and being aware of your lease end dates can save you a major headache down the line.
You may want to stick with the same site operator when you’re planning a wind farm extension. But if you want to rejig your site or replace your site operator, letting your lease lapse isn’t a good plan, as you’ll relinquish a good deal of control over your land.
By reviewing your lease agreement and looking out for any exceptional terms, decommissioning requirements, and rights, you can get ahead of the game. If you need to reapply for planning permission, this step is even more crucial.
3: Carry out a scan of the market
It’s a great idea to carry out a scan of the market to get a proper overview of current market rents being paid to other landowners. You can seamlessly do this with our Lumify SiteScan(™), which will give you all the information you need for renegotiations.
Compare the rents at hundreds of wind farms across the UK.
Access the best contractual terms written by the UK’s top solicitors to attain your ideal lease
100% of the landowners that we work with increase their rent negotiation offers
4: Investigate your site operator’s renewable energy plans
If your site operator has other sites or additional investments in renewables, you’ll probably want to know about these. This knowledge should help you understand your site operator’s plans and perspective on projects going forward. It’s important that you have this information on hand before extending the life of a project.
5: Decide on what you want from the project
When you’re doing this, you should consider estate, succession, and tax planning that might affect things down the line. Then, you can review newly proposed lease terms to ensure that the new lease is in line with the current market.
As you will have signed your initial lease up to 30 years ago, it’s important to consider what has changed in that time. So, don’t approach things as you did it before, as times will have moved along since your lease was last looked at.
It doesn’t matter whether you want to take things in-house or you want to keep things as-is. Negotiations are much easier with a plan.
If you speak to your site operator in advance, you’ll have a clear idea of their plans. This puts you on the front foot for a wind farm extension, as you’ll be able to come to an agreement that suits you best. Just remember not to let the process drag on for too long (and certainly not past the expiry date of your lease).
If you need any help with your wind farm extension lease, we encourage you to get in touch with the Lumify Energy team.
We understand that renegotiations can be tricky and that times have significantly changed since your first lease began. To avoid any problems or pitfalls, just drop us a line or check out our other blogs.