LANDOWNER CONTRACT REVIEW
Documents:
Wind Power Pty Ltd: Lease January 13, 2008 by Wind Power Pty Ltd
The agreement is entered into between a landowner and Wind Power Pty Ltd when wind turbines are erected on the land.Wind Power Pty Ltd: Deed of agreement January 13, 2008 by Wind Power Pty Ltd
This agreement entered into between the landowner and Wind Power Pty Ltd permits the developer to site a wind testing tower on the land. A minimum fee is paid the landowner.Wind Power Pty Ltd: Agreement for lease January 13, 2008 by Wind Power Pty Ltd
The agreement entered into between landowners and Wind Power Pty Ltd permitting Wind Power Pty Ltd permits the developer to take a lease over the land at any time. The agreement reads like an option to lease but no option fee is paid a landowner for signing the agreement.Wind Power Pty Ltd: Decommissioning Turbines September 04, 2004 by Sydney Morning Herald
The director of Wind Power pty ltd Steve Buckle has never hidden the fact that the landholder will end up owning the turbines, extract below confirms this fact;
Agreement for Lease Review of Proforma
Clause 2.1– Wind testing equipment: Allows the Tenant to erect a wind testing tower as soon practicable after the Agreement for Lease (AFL) has been entered into agreeing to grant a lease. There should be consideration (money) paid to the Landlord (participating landowner) for entering into the AFL. The AFL is an Option Agreement disguised as an AFL. If the landowner refuses or fails to remove the wind testing equipment, it will be liable to compensate for the Tenant for the cost of such removal, which should not be agreed to. The Tenant should place the equipment on the land at its own cost and be responsible for its removal in all circumstances.
Clause 2.2 – Commencement Date of the Lease: The Tenant can notify the Landlord of the Commencement Date of the Lease at any time on or before the Sunset Period of the AFL (the Sunset Period is explained in the proceeding paragraph). This means the Landlord may have little warning of when the Lease would commence because the Tenant would require the Lease at any time as soon as it obtains planning approval. This could detrimentally affect a landlord wishing to sell their land who is suddenly bound to grant a lease to the Tenant on short notice.
Clause 2.3 – Sunset Date: The Tenant can extend the Sunset Date (the Sunset Date is the expiry date of the AFL and is the period in which the Tenant can require the Landlord to a grant a Lease) by 1 year at any time before expiry of the Sunset Date.
The Sunset Date is either 24 or 36 months, being the period in which the Tenant conducts its feasibility and applies for a planning permit to construct the wind facility. The Landlord has no control over whether the AFL will bind the Landlord by 2 (or potentially 3) years, or 3 (potentially 4) years, which could create significant uncertainty for the Landlord. The Landlord receives no consideration (financial return) during the Sunset Period and is bound by the AFL if the Landlord sells the land. That is, the AFL binds any future owner of the land as well. Therefore, the Landlord would be required to disclose the AFL in any Contract of Sale to sell the land, which could have a negative impact in attracting prospective purchasers or achieving an optimal sale price for the land. The only out for the Landlord is if the Tenant notifies the Landlord prior to the Commencement Date of the Lease that the AFL is at any end (meaning the Lease is not required). This would occur if the Tenant was unsuccessful in obtaining planning approval or no longer required the land for turbines, etc. The Landlord should be free to walk away from the AFL at any time, prior to the Sunset Date.
Clause 3.1 – Premises (leased area): The Lease applies only to that part of the land where the turbines pads sit, and not the whole of the land. This means that the Tenant’s obligations and indemnities to the Landlord are limited specifically to those parts of the land where the turbines are sited, and not the whole parcel of land. For instance, in clause 7.1 of the Lease, the Tenant indemnifies the Landlord against any liability for loss, damage, injury or death arising directly or indirectly from the Tenant’s use or occupation of the Premises (and not the whole of the land). Therefore, the Tenant could deny liability for damage caused to the balance of the land which is not the Premises, including the Accessways (roads). The Tenant’s obligations should extend to the whole of land because it is not practicable to limit its obligations to select parts of the land.
Clause 3.3 – Commencement, Expiry Dates of the Lease and Plan: The Tenant dictates what the commencement and expiry dates of the Lease will be (subject to the agreed term of 20 or 25 years). However, these dates should be mutually agreed between the parties. The Tenant may also choose whether to provide an updated plan of the Premises leased and the Accessways. A plan should be compulsory, fully dimensioned (surveyed) and subject to the Landlord’s prior approval.
Clause 3.4 – Parties entry into the Lease: The Tenant must provide a signed Lease to the Landlord within 7 days of notifying the Landlord of the Commencement Date, which must then be signed and returned by the Landlord to the Tenant within 7 days. Seven days is insufficient time for a Landlord to obtain its mortgagee’s consent to the Lease. A Landlord should not enter into the Lease without first obtaining its mortgagee’s written consent to it, the risk being that the landlord’s mortgagee is not bound by the Lease in the event the Landlord’s mortgagee enters into possession of the land. A mortgagee could evict the Tenant if its prior consent to the Lease had not been obtained by the Landlord.
Clause 4.2 – Tenant’s indemnities: The Tenant indemnifies the Landlord against any claim or action of any kind due to any damage, loss, injury or death occurring in the Premises or the Land, except to the extent the Landlord causes any such damage or loss by a willful or negligent act or omission. The Tenant’s indemnity should extend to any claim associated with the Landlord having entered into the AFL for a claim of any kind not occurring on the Premises or the Land (meaning third party claims brought against the Landlord regarding loss and damage caused to adjoining landowners). The Tenant’s indemnity is limited specifically to the land upon which the turbines are placed and the balance of land.
Clause 5.1 – Insurance: The Tenant takes out public liability, contractors’ risk and an unlimited policy of workers compensation insurance whilst it is carrying out the works of erecting the turbines on the land and all other works such as cutting out of roads. The Tenant should be required to note the Landlord’s interest on the policy or be required to make the Landlord a co-insured, so the Landlord can claim on the policy if required, rather than rely on the Tenant to make such a claim.
Clause 5.2 – Insurance Currency: The Tenant is not required to automatically provide to the Landlord evidence of its insurance each year. The Tenant must only produce a copy of its insurance within a reasonable time after a Landlord requests it. The Tenant should instead be required to produce a copy of its currency of insurance to the Landlord within say 14 days of the policy’s renewal date.
Clause 5.5 – ‘Commercially Usual’ Insurance for Wind Farm Projects: The Landlord has no control over who the Tenant insures with, as the AFL only requires that the insurance be “commercially usual for wind farm projects undertaken in Australia”. This is vague and does not require the Tenant to satisfy the Landlord that the insurance taken out is standard for wind farm developments.
Clause 7.1 – Assignment of AFL by the Tenant: The Tenant is free to assign or otherwise dispose of its interest in the AFL to a third party. The Landlord has no control over an assignment because the Tenant may assign without the Landlord’s consent. It is standard for any AFL arrangement that a Landlord have control over a proposed assignment, and that an AFL cannot be dealt with, without the Landlord’s prior written consent. Also, it is standard in commercial lease arrangements for an assignor to guarantee the obligations of a proposed assignee taking over a lease. No such guarantee is provided of the Tenant.
Clause 8.3(b) – Termination: In the event the Tenant fails to remedy a breach under the AFL for which it has been notified by the Landlord, the Tenant must vacate the Premises and return them to the landlord in the same condition as the landlord first provided to the Tenant. This clause does not require the Tenant to return the land which comprises the Accessways (roads) to the condition it was first provided to the Tenant by the Landlord. The risk for the Landlord is that even if the Tenant restores any works to the sites where the turbines will be placed, that it will be left with roads over the land which serve no purpose.
Clause 8.3(c) – Make Good or Reinstatement: The Tenant can either remove all its property from the Premises or they become the property of the Landlord. This clause contemplates the Tenant abandoning the works, meaning ownership of those works would revert to the landowner. This risk for the Landlord is that it could be left with a wind testing tower and/or half constructed Wind Turbine Generators or dug out footings and roads, which are of no value and are costly to both remove and to reinstate the land. This is not standard for a lease arrangement. A tenant is usually liable for the cost of full make good. To prevent the works being abandoned and ownership reverting to the landowner, security should be provided which could be forfeited by the Landlord to remediate the land in such a case.
Clause 11 – Costs: The Tenant is not liable for the Landlord’s costs in the negotiation and execution of the terms and conditions of the AFL, for obtaining the landlord’s mortgagee’s consent to the AFL and Lease and the cost of any new replacement landlord entering into a deed of covenant with the Tenant in which any new landlord agrees to be bound by the Lease.
Clause 14 – Third party’s covenants: The Tenant require any new landlord to enter a deed of covenant (referred to above) agreeing to comply with the terms and conditions of the Lease. However, there is no such requirement of the Tenant to enter into a similar deed if the Tenant becomes bound to perform its obligations in favour of another landlord, such a sub-landlord.
Other obligations which should be imposed on the Tenant are:
a) A requirement for the Tenant to provide wind data from the Wind Testing Equipment if requested by the Landlord;
b) To update the Landlord at to the progress of wind testing, planning permit application and any other matter requested by the Landlord;
c) To provide security for during the Sunset Period whilst the wind testing equipment is located on the land; and
d) To provide specifications to the Landlord before entering into the AFL as to the specifications and model of the proposed Wind Turbine Generators, lighting, noise data from the turbine manufacturer.
Lease Review of Proforma
Clause 3.1 – Rent: The Tenant pays rent quarterly in advance. Rent is usually payable monthly in advance in standard commercial lease arrangements.
Clause 3.3 – Indexation of Rent: Rent is indexed to the Consumer Price Index (CPI) only. The rent should be subject to a fixed percentage increase per annum and/or increased subject to the revenue generated by the Tenant from the site or the Tenant’s projected earnings under its Power Supply Agreement. There is no specific ratchet clause in the Lease, preventing the rent from decreasing based on CPI.
Clause 3.4 – Rent Commencement Date: The Tenant can extend the Rent Commencement Date (being date the Tenant is required to start paying rent to the landlord) by 90 (or up to 180 days in the event the turbines if the turbines are inadequate), if 60 days notice is provided to the landlord. The Tenant should not be to delay or ‘push out’ the Rent Commencement Date given the landlord will have granted possession to the Tenant for that part of the land.
Clause 4.1 – Costs and charges: The Tenant must pay all electricity, gas, water and other public utility charges levied in respect of the Premises. The Tenant should be liable for all charges associated with the whole of the land.
Clause 4.2 – Installation of supply meters: The Landlord is liable for the cost of installation of any meters required for the Premises. This is a cost which should be borne by the Tenant as it is a cost connected with its use of the land. It is standard for a Landlord to pass on a cost such as this to a tenant in any commercial leasing arrangement.
Clause 4.3 – Electricity Supply Equipment: The Landlord is granted the right to install underground electricity cabling as approved by the landlord. Easements should be granted for such underground cabling to ensuring the Tenant (as the benefiting party to the easement) is liable for any act or omission or occurrence associated with the underground cabling. The Tenant should be responsible for that part of the land which is subject to the electricity easement, and should provide monetary consideration to the Landlord in exchange for being granted an easement. Easements would properly identify where the underground cabling is located, to ensure the future use of the land does not interfere with the cabling. These easements would be registered on the title to the land so that any third party could identify the location of the underground cabling which could be important for future horticultural use of the land, location of Accessways, etc. It would also help to ensure the Landlord does not interfere with, or cause damage to, the Wind Turbine Generators or any other equipment on the Premises.
Clause 4.4 – Additional Rates: The Tenant will pay any additional rates or any increases in rates which may at any time become payable as a result of the turbines being situation on the Premises, if the Landlord provides evidence to the Tenant that such increase or additional rates is connected with the use of the land for the wind facility. The Tenant should be liable for all rates, levies and taxes associated with the Premises, and not just an increase or additional amount assessed. It is standard in any commercial leasing arrangement for a tenant to be liable for the whole amount of outgoings assessed for the Premises. It should not be the responsibility of the Landlord to satisfy the Tenant of the basis of any increase. The Lease should also compensate the Landlord for any decrease in the site, capital and net annual values assessed for the Premises and land caused by the existence of the wind facility (should a decrease occur in the value of any part or the whole of the land).
Clause 6.1 – Insurance: Under the Lease, the Tenant is only required to take out public liability insurance for any one accident or event whilst the wind facility is in operation. This insurance requirement contemplates personal injury only, and does not deal with potential civil claims brought by third parties.
Clause 6.5 – Commercially Usual Insurance: The Landlord cannot withhold its consent to the Tenant taking out “commercially usual insurance for wind farm projects undertaken in Australia”. As previously stated, this clause is vague and the Landlord has no way of ascertaining or satisfying itself that the insurance taken out by the Tenant is ‘commercially usual’ because there is no industry code on what is ‘commercially usual’ for wind farm developments.
Clause 7.1 – Indemnities: The Tenant does not indemnify the Landlord for entering into the Lease or for any liability arising from any loss or damage caused by the Tenant suffered outside the Premises and to third parties on adjoining land. The Tenant’s indemnities are limited to the Premises and land only.
Clause 7.2 – Release: The Tenant releases the Landlord from any liability for loss or damage occurring in the Premises or on the land unless such loss or damage is caused by the negligence of the Landlord. Again, the Tenant does not release the Landlord for any loss or damage suffered outside the Premises or the land.
Clause 7.3 – Landlord’s Release: The Tenant is not liable for loss, damage or injury occurring in the Premises or on the Land arising from the Tenant’s breach of the Environment Protection Act 1970 (Vic) due to noise from the Wind Turbine Generators. This is onerous on the Landlord. The Landlord should not be responsible for any noise issues whatsoever. The Tenant should bear all risk associated with the operation of the Wind Turbine Generators without limitation. It is standard in any commercial leasing arrangement that the Tenant is wholly responsible for their use of the Premises.
Clause 8 – Permitted Use: The Tenant may only use the Premises for the “operation, maintenance, repair and service of Wind Turbine Generators or any other lawful ancillary purpose associated with the Wind Turbine Generators”. The permitted use should be strictly confined to the operation, maintenance, repair and service of Wind Turbine Generators, and “any other lawful ancillary purpose” should be deleted because it is vague and potentially onerous on the landowner. For instance, if the Tenant intends conducting a tourism venture or any other activity on the Premises, then this should be negotiated up front and dealt with in the Agreement for Lease and Lease so that the Landlord understands exactly what activities will be carried out on the Premises or any other part of the land.
Clause 9 – Tenant’s Obligations: The Tenant’s obligations to observe all laws and requirements of any authority concerning the use of the land for the wind facility. The Tenant must keep the Premises in good repair and fenced, however it is not clear exactly what fencing this relates to. Is it the existing paddock fencing or will separate fencing be installed near the area occupied by the Wind Turbine Generators? This is important because if there is separate fencing to be installed around the area(s) occupied by the Wind Turbine Generators, the Tenant could prevent the Landlord’s access to that part of the Property because under the lease the Tenant is entitled to exclusive possession of that part of the land agreed to the ‘the Premises’. The Tenant is also required to keep all gates shut to the Landlord’s land, however there is no such requirement for the Tenant to ensure that the gates are locked if necessary and the Landlord’s livestock are not harmed or allowed to escape whilst accessing the Premises or land.
Clause 10.1 – Assignment: The Tenant may assign the Lease at any time, provided the Tenant is not in default of the Lease, if it proves to the Landlord that the proposed tenant is respectable, responsible and solvent, the incoming tenant executes a deed (at the Tenant’s cost) covenanting to perform the Tenant’s obligations under the Lease and the incoming tenant provides additional security “as is appropriate” to secure performance of its obligations under the Lease, having regard to the terms and conditions of the Lease.
This clause is ambiguous because the Tenant is not required to provide any security under the Lease in terms of monetary security or personal guarantees and indemnities of its directors. Therefore, imposing an obligation on the incoming tenant to provide “additional security .. having regard to the terms and conditions of the Lease” is worthless. Also, any incoming tenant should have a proven track record in the operation of wind facilities, rather than simply being “respectable, responsible and solvent.”
Clause 10.2 – Assignment to IFS Vehicle: The Tenant may assign the lease to an IFS Investment Vehicle (meaning any investment vehicle established by Industry Funds Services Pty Ltd) at any time provided the Tenant is not in default of the Lease (or any default has been waived by the Landlord) and the Tenant proves to the Landlord’s reasonable satisfaction that the incoming tenant is respectable, responsible and solvent. Again, the Tenant should not be permitted to simply assign the Lease “at any time” to a vehicle that is just “respectable, responsible and solvent.” The proposed investment vehicle should have a proven track record in the funding of wind facilities.
Clause 10.4 – Charges Over Tenant’s Fittings: The Tenant can mortgage, charge, lease or deal with any Tenant’s Fittings (meaning any items of plant and equipment (including Wind Turbine Generators and the Electrical Plant) installed on the Premises by the Tenant) as a means of financing the Tenant’s Fittings, provided any waiver or similar document required by the Tenant’s financier is in a form acceptable to the Landlord (acting reasonably) and the Tenant pays the Landlord’s reasonable costs in for such a document. This clause is referring to the ability of the Tenant to encumber the plant and equipment of the wind facility to raise finance. Such an arrangement would require the Landlord to enter into a Right of Entry Waiver Agreement. This means that if the Tenant or operator goes into receivership, liquidation or becomes bankrupt, the Landlord allows the financer to enter the Premises to take possession (and possibly even remove) the plant and equipment which are encumbered.
The Landlord hands over all rights to the financier to take possession of and potentially remove the plant and equipment, which is onerous because it will mean the Landlord is not in control of the Premises or the equipment to enable it to arrange a new tenant to carry on operation of the wind facility. Rather, the Tenant’s financier would be determining the future of the wind facility and not the Landlord. A charge over the equipment should not be agreed to by the Landlord. This is explained further in Clause 15(b) regarding the Tenant’s ability to mortgage the Lease in favour of its financier.
Clause 11 – Landlord’s Obligations: The Landlord must allow the Tenant to enter the Premises to maintain, repair, service, view or for any other lawful purpose relating to the Wind Turbine Generators, “at any reasonable time”. This allows the Tenant to enter at any time it considers reasonable and does not require the Tenant to provide the Landlord with prior notice. This is onerous and could be potentially disruptive to the Landlord’s use of the other parts of its land, for instance during lambing season, crop dusting, etc. No obligations should be placed on the Landlord under the Lease, other than not interfering with the Wind Turbine Generators.
Clause 12.1 - Expiry or Termination: The Tenant is required to vacate the premises on the Expiry Date (or earlier termination) leaving the Premises (and not the land) in the condition required by the Lease.
Clause 12.2 – Removal of Tenant’s Property: The Tenant must remove its equipment from the Premises within a “reasonable time” after the Expiry Date of the Lease (or earlier termination) and make good any damage caused to the Premises. The definition of “Tenant’s Fittings” does not include the concrete footings, therefore there is no requirement for the Tenant to make good the land upon which the Wind Turbine Generators are placed. Similarly, there is no separate requirement for the Tenant to make good that part of the land where the Accessways are located. Therefore, the potential end result is that the Tenant could vacate, removing the Wind Turbine Generators and substation(s), but not the concrete pads, underground electricity cabling or the return the Accessways to productive farming land.
Any equipment which the Tenant leaves on the Premises is deemed “abandoned” and the Landlord may remove that property form the Premises and deal with it “in any way the Landlord thinks fit”. The expense of such removal is at the Tenant’s costs. This clause is particularly onerous because a Tenant could abandon the Wind Turbine Generators and substation(s) leaving the Landlord the difficult task of arranging dismantling of the wind facility at its cost initially, before then seeking to recover the cost from the Tenant. If the Tenant is no longer solvent, the requirement that the Tenant cover the cost to make good the Premises is worthless. This is particularly onerous on a Landlord and an issue which a prudent mortgagee of the Landlord would be reluctant to agree to, because an abandoned wind facility with an insolvent tenant would be disastrous to the value of the land and its productive capacity.
Clause 12.2(c) specifically states that the Tenant is not required to remove all concrete from the Premises (unless required by law), but must only “cover the concrete as reasonably required by the Landlord”. This again is particularly onerous because the Landlord will not be compensated by the Tenant for the irretrievable loss of productive land due to the concrete footings remaining in the ground after expiry of the Lease. The requirement of the Tenant to simply cover the concrete base with soil will be inadequate if the site is prone to high speed winds, run off and erosion.
Clause 13 – Holding Over: If the Tenant continues to occupy the Premises after the Expiry Date, the Lease will revert to a monthly licence arrangement and will be subject to the same terms and conditions as the Lease. Either party can terminate that monthly arrangement by providing one month’s written notice to the other, which is in adequate notice for the Tenant to provide to the Landlord. The Landlord should be paid additional consideration where there is a monthly arrangement in place because there is no certainty for the Landlord as to how long a monthly arrangement could continue. This would impact on the ability of the Landlord to plan its future expected earnings, tax liabilities, etc., and any could affect a sale of the land.
Clause 14 – Abandonment of Premises: If the Tenant vacates the Premises during the Term, the terms and conditions of the Lease continue unless the Landlord accepts a surrender of the lease from the Tenant or until a new tenant takes possession of the Premises. If the Landlord enters onto the Premises during a period of abandonment, it does so “with the leave and licence” of the Tenant. This means the Landlord could re-enter the Premises as a licensor of the Tenant, and therefore would be exposed to any potential liability as an agent of the Tenant, for instance, claims brought by third parties against the Tenant. If the parties cannot come to an agreement allowing the Tenant to surrender the lease (usually for a surrender sum), then a situation of abandonment could continue for a least the remainder of the Term. If the tenant becomes insolvent during a period of abandonment, the Landlord could be left with an inoperative wind facility which it cannot afford to dismantle and the cost of decommissioning the facility can never be recovered from the Tenant.
Clause 15 – Default: The Landlord can terminate the Lease if the Tenant commits a default, however this is again onerous because there is no security in place protecting the Landlord in the event of a default. If the Landlord ended the Lease as a result of the Tenant’s default or breach, the Landlord’s ability to claim the balance of rent unpaid for the remainder of the Term could be difficult because there is no ‘essential terms’ clause in the Lease specifically stating that the payment of rent is an essential term of the Lease.
Clause 15(b) - Tenant’s mortgage of the Lease: The Landlord acknowledges and agrees that it will consent to a mortgage of the Lease and to any reasonable terms and conditions which any financier imposes being a consent to mortgage of lease, including granting the financer a right of entry, giving the financer 21 days before exercising any of the Landlord’s rights including terminating the Lease, taking possession of the Premises, refusing to grant a further term, converting the Lease to a periodic tenancy, varying the Lease and forwarding to the financer any notices received by the Landlord regarding the tenancy. The financier is permitted to lodge a caveat over the land in respect of its interest in the mortgage of Lease and can require any future owner of the land to be bound by the same requirements due to the Tenant mortgaging its interest in the Lease. This is particularly onerous and should not be agreed to. A Landlord with a defaulting Tenant will be controlled by the Tenant’s financier and prevent the Landlord’s sale of the land.
Clause 15 – Damages for Breach: The Tenant must compensate the Landlord for any breach of “an essential provision” of the Lease, however the Lease does not define which terms and conditions of the Lease are in fact “essential provisions”. This is important because any claim for damages will be founded upon a fundamental breach of the Lease. As it is not clear which terms and condition of the Lease the parties have agreed are the essential, this could be problematic for a court deciding on a claim for damages.
Clause 16 - Costs: The Tenant is required to pay the Landlord’s reasonable legal costs for any consent required under the Lease, any assignment, surrender or termination or default of the Tenant. However, Clause 16 does not include the Tenant paying the Landlord’s reasonable legal costs for obtaining advice on the Agreement for Lease and Lease or entering into either of those two documents. Clause 16 does not require the Tenant to pay the Landlord’s legal fees in relation to any variation of Lease required by either party.
Clause 18 – Further Terms: This clause compels the Landlord to consent to a renewal of the lease for a further 5 year term if there is no unremedied breach by the Tenant and the Tenant has requested a further term not more than 6 months, and not less than 3 months, prior to expiry of the current term. This means that there is no “out” for a Landlord who no longer wants to host turbines on their land at the end of a term. Therefore, the Landlord has essentially committed to providing a Lease for the duration of the initial term and all further terms under the Lease, which is may be between 20 and 25 years. Also, the terms and conditions of the Lease will not change when each the Lease is renewed for a further term, which could prove to be unduly restrictive on the Landlord as the commercial arrangements and circumstances of the Lease being granted, change over time.
Clause 19 – Tenant’s Right to Lodge a Caveat: The Tenant may register the Lease on the Landlord’s Certificate of Title by lodging a caveat. This is unnecessary because leases are not registered on title in Victoria, and a caveat could present problems for a Landlord and its financier. That is, if the Landlord was to subdivide their land, mortgage or re-finance their land or transfer the land to a purchaser, the Tenant’s written consent would be necessary. The Tenant should not have this level of control over the Landlord’s dealing with the land.
Clause 20.3 – Interest on Overdue Money: The penalty interest rate is low for a commercial lease of this nature. The penalty rate is only 2% above the statutory rate under the Penalty Interest Rates Act 1983. The current statutory penalty interest rate is 12% per annum. The penalty rate should be at least 4% or 5% above the statutory rate, or fixed at say 20%, to discourage the Tenant from making late payments under the Lease.
Clause 20.4 – Whole Agreement: The Lease is meant to embody the whole of the agreement struck between the parties and states that no additional representations have been made by either party. A Landlord entering into the Lease should carefully consider whether any representations have been made by the Tenant prior to the Landlord entering into the Agreement for Lease or Lease. For instance, one landowner was has been told by a prospective tenant that the concrete footings do not need to be removed from the land when the Lease expires because they can be used to place cattle troughs on them. Another prospective landlord was told that a landlord does not need to be concerned about the Accessways cut into their land because they provide a means by which the landowner can “better access their property”. Other landowners have been told that the income stream of the Lease “drought proofs” the landowner. Any additional representations made by the Tenant should be incorporated into the documents so that the Landlord has recourse if these representations prove to be false and/or misleading
Summary
Both the Agreement for Lease and Lease are onerous documents a Landlord should not sign. Any set of leasing documents which are drafted by the tenant will be hazardous because they will be prepared in a “tenant friendly” manner, as is the case here. There is little certainty for the Landlord entering into the Agreement for Lease and Lease as to the viability of the wind energy facility and the expected life of the project. Due to the volatility of renewable energy markets, any landowner granting rights over their land for a wind energy facility to be constructed, combined with unlimited access rights to an unsecured tenant, should not do so without considering the potential exposure of such an arrangement. Commercially, it is a bad deal for landowner, particularly given the income stream is not guaranteed.