Recently, our law firm has been increasingly approached by people who are interested in entering into a land lease agreement for a photovoltaic (PV) power plant. We receive various types of draft lease agreements, which do not always contain favorable solutions for property owners who, on the basis of the lease agreement, want to give the property for use to an investor for the purpose of erecting a photovoltaic power plant on it.
Below are some issues to pay attention to when entering into a property lease agreement for the construction of a photovoltaic power plant.
Check the investor interested in entering into a lease agreement for a photovoltaic power plant
At the outset, it is worth determining what kind of entity is interested in concluding a lease agreement for a photovoltaic power plant. Currently, in the market, in addition to serious investors interested in the implementation of photovoltaic power plant projects, there are also many intermediaries with whom the conclusion of a lease agreement, in fact, can only lead to the reservation of the property on the basis of which the property owner will be blocked for several years and will not receive rent or will receive it in a symbolic amount.
How will the lease area be defined in the lease agreement for a photovoltaic power plant
In lease agreements for photovoltaic power plants, we often encounter provisions where investors have the right to reduce the subject of the lease on which the photovoltaic power plant will be built. Of course, this reduction is in accordance with the interests of the investor, which, consequently, may result in a reduction of the lease rent for the owner, if it is calculated on the area of the property actually occupied for the photovoltaic power plant.
Therefore, already at the stage of entering into a lease agreement for a photovoltaic power plant, one should be aware that the final value of the lease rent under the lease agreement may be reduced.
In addition, after the final demarcation of the subject of the lease on which the photovoltaic power plant will be located, there may be so-called “strips” and “shreds of land” or inaccessible places from which property owners will not be able to use. Therefore, it is worth regulating this issue in the lease agreement for the photovoltaic power plant.
What is the stipulated lease rent in a lease agreement for a photovoltaic power plant
Typically, lease agreements for a photovoltaic power plant stipulate a lease rent broken down into two periods. The first covers the period from the date of the lease agreement for a photovoltaic power plant to the date construction of the photovoltaic power plant begins. The second period begins on the day construction begins and lasts until the end of the contract term. The rent during these periods usually varies, while in no case do we see justification for a lease agreement for a photovoltaic power plant to provide only a token rent for the first of these periods. The owner should also get a real remuneration for the period from the date of conclusion of the lease agreement for the photovoltaic power plant to the date of commencement of construction work on the photovoltaic power plant.
What is the stipulated rent in the lease agreement for a photovoltaic power plant for the dismantling period
Recently, we have also encountered provisions in lease agreements for a photovoltaic power plant, under which the investor pays only a small part of the lease rent (for example, 10%) for the period of dismantling the photovoltaic power plant. If the owner cannot use the property anyway during the dismantling period of the photovoltaic power plant, why should he receive only a portion of the rent from the lease agreement of the property for the photovoltaic power plant.
The term of the lease agreement for a photovoltaic power plant and what are the possibilities of early termination
Typically, real estate lease agreements for photovoltaic power plants are concluded for a period of 29 years. Therefore, in the lease agreement of real estate for a photovoltaic power plant, the owner should be guaranteed the right to terminate the agreement before the expiration of this period at least in the situation of non-payment of rent and other fees under the agreement, failure to implement the project within a period of, for example, 24 months, and the possibility to terminate the lease agreement for a photovoltaic power plant in the event that the lessee violates the material provisions of the lease agreement and does not remove these violations within a specified period.
Summary
The above indicated only some of the issues to which attention should be paid in contracts for the lease of real estate for photovoltaic power plants. In fact, each lease agreement requires individual verification and a proper balancing of the interests of the parties so that, on the one hand, the property owner is adequately secured and, on the other hand, the investor can realize the construction of a photovoltaic power plant and obtain financing for its construction.
