Solar landlord, tenant and funder must agree terms
The ethos of most solar farm schemes is that the solar company does the work to get planning and put the option and lease in place, with the funding coming from another source,a bank or financial institution or investor group.
The funder wants to protect his investment, so options and leases contain clauses such as this: “The landlord will at the company’s request and cost enter into a direct arrangement with any funder on such terms as the funder reasonably requires”.
What is wrong with that, you may ask?
A lot, in my opinion.
Doesn’t the funder have to be reasonable? No, actually.
The clause refers to such terms as the funder reasonably requires.
Would you accept a change to the length of the term because the funder requires it to make the funding viable, a change to the manner in which the rent is calculated, an obligation to make additional land available for ancillary works, etc, for no additional payment?
All of these are possibilities under this clause.
Another clause could be as follows: “The landlord will, at the company’s request and cost, enter into a direct agreement with any funder on such terms as the funder reasonably requires for the purposes of inter alia provided step in rights to the funder in the event of a company default”.
Most landowners would have no problem in granting step in rights to the funder, so that the funder can take over the project in place of the solar developer.
The ability to step in provides comfort for the funder, in that if the solar developer defaults in its repayments to the funder, the funder can step in, or appoint someone else to step in, instead of the developer, to finish off the construction of the solar farm, run the solar farm for a while, and then sell it on, to ensure the loan from the funder is repaid.
The landowner will not mind who operates the solar farm as long as the rent is paid, and the tenant’s covenants are observed.
Indeed, if the funder does not want a direct agreement, the landowner can take comfort that the funder does not intend to allow the project to fail, certainly while the loan remains outstanding.
So what is wrong with this second clause? Well, it is those Latin words, “inter alia”, meaning “among other things”.
That takes us back to the problem of what other things the funder might want in that direct agreement. Without those words, it would be acceptable, with them it is not.
So what can you do?
I would advise the landowner to negotiate the best amendments he or she can, so that at least the funder cannot change the fundamental terms of the deal, the rent, the length of the term, the landlord’s obligations etc.
You should also seek a proviso that any such agreement will not impose terms that are more onerous than are currently proposed in the Option and Lease.
If the developer will not agree to any of these changes, and insists on one of the two clauses I have referred to, I would advise the landowner not to proceed.
Another issue with funders is forfeiture. Understandably, funders do not want to see their considerable investments disappear because the solar tenant breaches the terms of the lease.
Therefore, there will often be a provision that the landlord cannot forfeit until he has given written notice to the funder, and allowed the funder a period of time to rectify the breach, or find a new tenant.
Two issues here: obviously, the landlord needs to know the name and address of any funder so that the obligation should only apply to the funder with whom he has been given written notice.
The other issue is the period of grace allowed to the funder. In some agreements, the landowner will have to wait 12 months.
Does he really want to wait a year if the rent is not being paid or if the developer is causing damage to his land?
So, when agreeing terms of solar leases, it is important to agree a sensible period of grace, three months or at most six months, and perhaps a shorter period in the event of non-payment of rent.
I know I sound like a broken record but this is a topic I am passionate about.
Take your time, read the small print, and instruct a solicitor who is experienced with dealing with these types of agreements.
Developers need to be more reasonable in their approach to landowners.
You need to sit back and ask yourself “have I thought about X, Y and Z?”, with the aim of bringing the matter to a successful conclusion.
I am not against these types of agreements at all.
I am, however, against not having the right agreement in place.
