Land considerations in energy projects

The UK has committed itself to an ambitious set of climate goals to achieve net zero by 2050. As a result, there has been a noticeable increase in the amount of renewable energy projects (e.g. solar, wind, biomass) being rolled out between the private and public sectors.

All such energy projects require land, which is (literally and figuratively) the foundation of any installation or energy facility. From inception to completion, most energy projects tend to follow a set process: (1) due diligence of the land (2) identification and dealing with adverse land issues (3) contract negotiation (4) post-completion and site management.

(1) Due Diligence Process

Arguably the most important stage of any land acquisition or leasing process is the due diligence stage. Understanding the suitability of the land starts here and any prospective acquiring party or tenant should consider the following steps:

1. Identify the site and prepare a plan (ideally use OS mapping software)
2. Consider and clarify practical land and access requirements, for later construction and operational phases
3. Acquire and review title documents
4. Raise any issues (Commercial Property Standard Enquiries (CPSEs) or any other queries) with the seller, if applicable.
5. Carry out desktop searches and commission physical investigations and surveys

(2) Dealing with adverse land issues

A detailed due diligence exercise could reveal issues with the land or title – for example, third parties who may be affected by the project or adverse search results (e.g. restrictions on title, subsidence, high risk of flooding).

If there are third parties involved, it may be necessary to negotiate access for them to undertake surveys (intrusive or non-intrusive as appropriate). There may be occupiers on the land and lease surrenders (in whole or in part), or variations to leases, may also need to be negotiated.

The title documents may reveal encumbrances – restrictions such as obligations to acquire consents, overage, or pre-emptive rights. Indemnity insurance is generally sufficient for restrictive covenants, but other restrictions can be more complex. The desktop searches will flag up any ground features that may require further technical investigation, re-design, and/or indemnity insurance.

For local authorities, there are specific statutory obligations to be aware of, most notably those under s.123 of the Local Government Act 1972.

(3) Contractual Negotiations

The most common property contracts relating to energy projects are leases, easements/wayleaves and licences.

When dealing with leases, there are clauses which are more pertinent in the context of energy projects. For example, in relation to use clauses, if heavy equipment is being installed on the land and it is loud/emits pollutants/vibrates a lot, the lease should set out clear obligations with regards nuisance and noise pollution. Also, environmental clauses are also ones to consider from the point of view of a landlord – any liability relating to contamination of the land should ideally fall on the tenant once the lease commences.

Both easements and wayleaves are very likely to be required to link plant/apparatus to external electrical or gas connections. Whether an easement or a wayleave is being negotiated, the final contract should ensure that there are adequate yet balanced rights for both the energy company and the landowner.

Licenses are utilised to obtain short-term or temporary rights over land where none presently exist. For example – a licence of a construction compound or a licence to access the land to conduct site surveys. A most important consideration is the lease/licence distinction – i.e. if acting for landowner, make sure that you have not inadvertently granted the energy company a lease (this in turn gives an occupier rights and protections that a landowner is unlikely to have originally bargained for!).

(4) Post-Completion & Site Management

Once a property transaction is complete, the hard work insofar as getting the project started may be done, but there are always post-completion and site management considerations that need to be checked throughout the tenure of a property contract (especially leases).

Generally, during the post completion stage there are the ‘golden three’ checks – (1) make sure that any documentation requiring registration at HM Land Registry is done so within the correct time (2) ensure any Stamp Duty liability or other levies are settled with the relevant authority (3) check ongoing obligations under the contracts.

Site management is also key – not only should ongoing obligations be monitored (it may save a costly dilapidations bill at the end of the term!) but there may be set junctures for which rent gets reviewed and the contract is re-geared to reflect changes in the law or commercial position of the parties.

Takeaways

• Start due diligence early – resolving defects flagged by the due diligence can be time consuming and costly.
• Approach negotiations collaboratively – the aim of negotiating should be to agree contracts which will facilitate project delivery on terms that: are commercially realistic for both sides; are appropriately tailored to the land/property in question; and maintain project viability so that other areas of contractual negotiation can proceed smoothly.
• Commit to ongoing review – diarising ongoing checks of requirements and key dates, regular lease monitoring, and subsequent engagement with the counterparty is key.
• Take specialist advice (be it legal, surveyor, agency or otherwise).

Lillee Reid-Hunt is a Senior Associate (New Zealand-qualified) and James Nelson is a Solicitor at Sharpe Pritchard.

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This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email  enquiries@sharpepritchard.co.uk