In today's article from the "Lawyer on the Farm" series, we'll continue our discussion of practical tips for those of you planning to sign lease agreements for renewable energy investments. This week, we'll cover the following: (i) termination of the agreement and (ii) restoration of the land to its previous condition.
The part of a fixed-term land lease agreement for renewable energy projects concerning the terms of termination is usually complex. According to civil law, fixed-term contracts can only be terminated in specific cases. Therefore, when signing the agreement, both parties should carefully consider all circumstances that could make further implementation of the agreement unfavorable or uneconomical. It is also important to protect themselves in the event the other party fails to properly fulfill the agreement.
From the landowner's perspective, key situations include late rent payments or delays in the construction of a photovoltaic power plant, which can lead to a longer period of reduced rent. To avoid long-term disadvantages, it's worth including a clause in the contract that entitles the landowner to terminate the contract if progress is not made in the construction and implementation of the power plant.
It's worth carefully reviewing the lease agreement provisions, which specify the terms and conditions for termination by the lessee. Referring to general grounds such as unprofitability or technical and legal difficulties in operating the power plant creates the risk that the investor will easily terminate the agreement by invoking broadly defined termination rules.
It's also important that the clause regarding contract termination in the event of failure to obtain a building permit be worded in a way that doesn't depend on the investor alone. They must demonstrate due diligence in obtaining the appropriate building permits. Such provisions are intended to protect against a situation in which the land is blocked by an investor who pays minimal rent and then withdraws from the plans.
Already at the stage of concluding a lease agreement, it is important to precisely determine the condition in which the land will be returned to the lessor. It is crucial to create legal and factual conditions that allow the owner, usually a farmer, to continue agricultural operations or lease the land for agricultural purposes. To this end, the investor should be obligated to: (i) dismantle the power plant and associated infrastructure (this obligation is extremely important and must be clearly included in the lease agreement. It should also be ensured that the investor removes all waste, including hazardous waste, in accordance with applicable regulations), (ii) reclaim the land, aiming to restore the agricultural character of areas degraded by the construction and subsequent demolition of the power plant. This process is costly and should be imposed on the investor to ensure that the leased property is returned in a undisturbed condition, and (iii) restore the agricultural use in the land and building register. It's a good idea to oblige the investor to take the necessary steps to amend the land registry, which will allow the owner to pay significantly lower agricultural tax and conduct agricultural activities on the land instead of high property tax. Furthermore, the investor may be liable for contractual penalties or damages if the investor breaches these obligations, for example, in the event of delays in the demolition of a renewable energy farm or failure to complete reclamation processes. The lease agreement should include a procedure for handing over the land upon completion in the form of a handover protocol, with the recommendation to include photographic documentation. This approach will enable a comparison of the property's condition with its initial state, which may be helpful in the event of the owner pursuing compensation claims.
Leasing agricultural land for renewable energy purposes can provide an additional source of income for farmers. Although lease agreements are often prepared by renewable energy companies, it's important to negotiate the terms. Signing a contract for almost 30 years is a significant commitment, so it's worth protecting your interests and protecting yourself against various situations that may arise during this period.
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 19, 2025
author/editor of the series:
Be the first to receive our articles and legal alerts, straight to your inbox! Sign up for our newsletter by clicking the link or contact us at social@kglegal.pl to personalize your content.
