In today's article from the "Lawyer on the Farm" series, we will conclude our discussion of practical tips for those of you who intend to conclude lease agreements for renewable energy investments. This week, we will cover institutions such as: (i) fees and taxes, (ii) lease pre-emption rights, and (iii) lease priority rights.
First, we will analyze the topic of public fees and taxes. Right from the start, the need to convert agricultural land into land suitable for industrial operations may arise. We would like to draw your attention to the fact that renewable energy investments can be implemented on agricultural plots of quality class IV or lower. This is important because if an administrative body determines that such land contains soils of organic origin, a fee for the so-called "reclassification" will be required .
According to the regulations, the property owner, as the taxpayer, is obligated to pay taxes. This means that after the agricultural land is converted and the lessee begins investing on it, the owner will be obligated to pay property tax, the rate of which is significantly higher than the agricultural tax.
Therefore, it will be crucial for the lessor to agree during contract negotiations that the lessee will be responsible for paying the tax-related fees, which the lessor will continue to be obligated to pay. In this case, such a provision should be treated as a reimbursement of expenses incurred by the lessor, not as an actual tax burden on the lessee. Why is this issue so crucial? The lease agreement should provide appropriate security for the lessee's tax payments, because in the event of tax arrears, the tax authorities will pursue enforcement proceedings against the landowner, not the lessee.
Because lease agreements are typically concluded for periods of nearly 30 years, the lessor must unfortunately also anticipate all other potential "future" public levies. The renewable energy industry continues to grow rapidly, and it is not entirely impossible that in the future, additional taxes will be imposed on the lessor. Therefore, it is worth addressing this aspect before entering into the lease agreement by including a provision that the lessee will be obligated to reimburse the lessor for such fees and public levies.
Lease agreements also include a right of first refusal to purchase the leased property. This provision is understandable, as a lessee intending to invest in renewable energy sources is fully aware of the significant capital required, as well as the fact that the land will be fully adapted for further operations (in the case of a photovoltaic farm, once the photovoltaic panels are used up, they simply need to be replaced, as the remaining infrastructure will not require any work). This right of first refusal significantly limits the owner's ability to choose a new contractor, especially if they wish to sell the property to a family member. In our opinion, there is nothing to prevent a lease agreement from including a provision that waives the lessee's right of first refusal if the property were to be acquired by entities belonging to the lessor's immediate family.
In some lease agreements, we also encountered a provision granting the lessee a right of first refusal to re-lease the land. In practice, this means that if the lease expires or is terminated, and the lessor is still interested in leasing the land, they will be able to exercise this right. Consequently, the current lessee will have the right of first refusal to enter into a new lease agreement. Please note that if the lessor fails to comply with this provision, the lessee will be able to file a lawsuit and seek compensation.
Due to the content of today's article, we once again ask you to pay special attention when analyzing contractual provisions, because such contracts are concluded for many years and it is necessary to take care of 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 March 5, 2025.
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