Wind and solar farms are becoming important sources of renewable energy in South Australia. Landowners must consider several factors before entering into a windfarm agreement and understand the legal documents in these agreements, including access agreements, option agreements, leases and easements.
What are 'conditions precedent'?
The developer will often need to satisfy conditions either before they are granted access to the land to commence construction, or the lease over the land will commence (these are known as "conditions precedent").
Common conditions precedent include:
- The developer obtaining all relevant consents and approvals for the renewable energy project, including development and finance approval from the project financier before they can access the land to proceed with construction; and
- The developer completing the construction of the wind/solar farm infrastructure on the land.
As access agreements are usually for a three-to-five-year term and drafted to protect the developer, the landowner must be aware of the potential risks associated with conditions precedent. To mitigate risks, it must be clearly drafted with each party's respective rights and obligations defined to avoid legal disputes down the track.
What are the risks?
There are risks associated with conditions precedent that landowners need to be aware of:
1. Approvals - When the agreement does not
clearly define the timeframe for the developer to satisfy
conditions. The agreement should clearly set out the latest date
that the developer must obtain the relevant approvals. If the
approvals are not obtained by this date, either party should have
the right to terminate the agreement.
2. Construction - This will take place after the developer has obtained all the requisite approvals. Common risks include:
- the agreement not clearly defining the commencement and completion date of the construction.
- the agreement not imposing any obligation on the developer to construct as swiftly as possible; and
- where/if the construction is not completed by the latest date for its completion, the agreement not giving the landowner a right to terminate the agreement.
3. Commencement of the Lease - The lease commencement date will usually follow after completion of the construction. The agreement should clearly define the commencement date. If the commencement date is subject to completion of the construction, there should be a timeframe imposed on the determination of completion. Common risks include the agreement not specifying the lease commencement date or the means by which the lease commencement date can be determined.
4. Fees - The fees payable by the developer to the landowner are often subject to payment milestones, such as:
- a licence fee payable on signing the agreement; and
- a licence fee payable after the developer has obtained all requisite approvals but before the developer is granted access to the land to commence construction.'
To mitigate these risks, it is important for the agreement to be clearly drafted with each party's respective rights and obligations defined and clear terms of payment so there is certainly on timeframes. Sometimes, the developer may condition the payment of a fee on another event occurring, which could mean that the landowner doesn't get paid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.