In today's article from the "Lawyer on the Farm" series, we'll present practical tips for those of you planning to enter into lease agreements for renewable energy investments. In recent years, we've seen a surge in the market for land acquisition for this type of investment. Because such agreements are typically concluded for periods of up to 30 years, we believe that landlords should understand several fundamental aspects of contracts that must always be included in the agreement. This can significantly reduce risk. This week, we'll discuss the duration of the agreement, the precise definition of the subject matter of the agreement, and the lease fee.
First, let's consider the contract term, which in such agreements is typically 29 years. At this point, we must dispel a myth deeply ingrained in the industry. Contrary to popular belief, the 29-year period is not related to the period of adverse possession, as adverse possession cannot be considered in situations where possession of the property is dependent, meaning it results from a contract concluded with the landowner, in this case, a lease. Furthermore, this stems from Article 659 of the Civil Code, according to which a lease agreement concluded for a period longer than 30 years is deemed to have been concluded for an indefinite period after the expiration of that period, and is much easier to terminate by notice than a fixed-term contract, which can only be terminated in the cases specified in the contract itself.
Please note, however, that entering into such agreements may in certain cases involve the risk of adverse possession. Adverse possession can occur if, during the term of the lease agreement and the lessee's use of the land, they exceed the agreed-upon area specified in the agreement and, without a contract, occupy part of the property owned by the lessor or a third party. If this situation persists for more than 20 years (in good faith) or 30 years (in bad faith), adverse possession may indeed occur in this area (not covered by the lease agreement). Therefore, it is advisable to attach a map to the lease agreement, precisely defining the lease area. This is important because in these types of agreements, the rent is calculated per hectare leased.
It's also worth paying attention to the rent amount specified in lease agreements, which typically consist of multiple elements. In such agreements, the rent amount may differ significantly depending on the specific stages of the investment. In practice, this means that a reduced rent rate will occur during the preparatory period of the investment until the actual start-up of the project and the consumption of electricity. It's important to emphasize that the lessor will typically receive the correct rent rate only from the commencement of construction of the photovoltaic power plant, through the period during which energy is produced and stored, until the end of operations. It's worth remembering that the agreement should include another reduced rent rate, specifically in the period after the RES operation ceases, until the property is returned to the lessor (restored to its original condition).
We also emphasize the preparatory period, during which no investment work is actually being carried out on the leased land. The ability to continue agricultural operations will be extremely important and beneficial for the lessor. This will allow the lessor to compensate for the initial, lower rent. Every potential lessor should be aware of and implement the provision regarding rent indexation in their agreement. Thanks to indexation, we can adjust the agreed rent rate to changing economic conditions and changing purchasing power over time.
In conclusion, we emphasize that leasing agricultural property for renewable energy investments can indeed be a significant source of income for farmers. However, we urge you to carefully review the contractual provisions, as such agreements are concluded for many years and it is essential to protect your interests.
If you have any questions or concerns regarding the draft agreements, please feel free to contact us. We invite you to read our upcoming articles, which will continue to discuss important aspects of lease agreements for renewable energy investments.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 19, 2025
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