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Is it possible to terminate a signed land lease agreement for renewable energy sources without financial penalties?

Czy można zerwać podpisaną umowę o dzierżawę gruntów pod OZE bez kar finansowych?

During the Power Field conference, practical aspects and advice related to leasing land for renewable energy could not be missing. We asked Ms. Małgorzata Malinowska-Mizera, vice-president of the management board, Młyny Szczepanki – can a farmer terminate an already signed contract for the lease of land for photovoltaics or wind turbines?

The expert also answered what financial consequences a farmer must face when breaking such a land lease agreement for renewable energy sources.

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Is it possible to terminate the lease of agricultural land for renewable energy sources and how?

The expert warns that it is better to avoid such a situation. However, remember that the contract should include provisions regulating the issue of premature termination by both parties, not only the land leasing company.

In practice, renewable energy lease agreements are concluded for 30 years. However, during the first 5-6 years of the contract, the lessee prepares the entire renewable energy investment project for implementation. During this period, he may encounter a number of various obstacles and problems of an administrative nature; starting from problems with the local plan, through delays in obtaining environmental decisions, to construction permits. Therefore, the farmer must absolutely ensure that the lease agreement includes provisions specifying the time for this preparatory period, let it be 5-6 years – emphasizes Małgorzata Malinowska-Mizera, vice-president of the management board, Młyny Szczepanki.

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As the expert points out, if after 4 years of the contract, the tenant does not start the project stage, the farmer should be able to terminate the lease without incurring financial consequences.

Let us remember that in order for a farmer to be able to do this, such an agreement must include provisions and regulations contained in the agreement that will allow him to take such actions if the lessee fails to meet certain conditions contained in the agreement.

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As the expert points out, there may be other provisions in the contract that discipline the company leasing land for renewable energy to timely fulfill subsequent stages of the contract.

You can include provisions in the contract that the farmer may demand that the tenant pay a higher rental rate, even up to half of the target rate after 5 years, if he does not complete the preparatory and design stage on time. Such regulations definitely motivate each tenant to carry out the investment preparatory process in accordance with the plan agreed in the contract. And after a longer period, the farmer may demand payment of 100% of the lease rent – emphasizes Małgorzata Malinowska-Mizera, vice-president of the management board, Młyny Szczepanki.

Farmer, make sure that the contract includes provisions allowing you to break it without financial penalties.

What to do if a farmer does not find the above provisions and regulations in the land lease agreement for renewable energy sources, but is placed under his nose by a salesman?

Most likely, the farmer will find provisions in such a contract that allow the company leasing the renewable energy sources to terminate it without incurring any financial consequences. Most often, the tenant will always be able to break it due to economic or legal reasons, and this is understandable, because it is difficult to continue the contract if the tenant is unable to complete the investment due to, for example, failure to process the investment in the commune – notes Małgorzata Malinowska-Mizera, vice-president of the management board , Szczepanki Mills. – However, if there are no provisions in the renewable energy lease agreement allowing the farmer to terminate it earlier, we have a Pat, ladies and gentlemen. If there is no will on the part of the lessee to break the agreement, it will be practically impossible to convince the court to terminate such an agreement without the farmer incurring financial penalties. The farmer will be burdened with financial sanctions, usually costs that the tenant has already incurred.

As the expert emphasized, it is difficult to say how such court proceedings will proceed, because each situation and contract is different.

It is better to ensure that the contract includes provisions regulating and allowing the farmer to terminate it if the lessee does not fulfill the contractually specified stages of the RES investment, rather than to go to court. Why? Because the latter solution always involves the risk of greater financial losses for the farmer – summarizes Małgorzata Malinowska-Mizera, vice-president of the management board, Młyny Szczepanki.

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