In part 1 of this article, exploring the important considerations for extending the term of a solar lease, we looked at the different options for extending the term, Stamp Duty Land Tax, legal charges and land registry requirements. This article will consider the implications for planning permission, easements and substation leases, and what might happen if a landowner looks to sell their site.

Planning permission

To continue running a solar farm, not only will a developer need a lease allowing them to use the relevant land, but they will also need planning permission to allow the land to continue to be used for as a solar development site. Usually the planning permission will have the same term as the original lease and will, almost without exception, have a condition requiring site restoration at the end of the operational phase.

In assessing whether a Local Planning Authority are likely to grant further planning permission to allow land to continue to be used as a solar farm, it is important to consider the basis of the original decision and how the project has been run since.

For example, if the Local Planning Authority seemed reluctant to grant the planning permission in the first instance or there were problems getting the application approved, it may be difficult to get further planning permission. It is worth asking oneself whether the Local Planning Authority would have originally granted planning permission for the entire period.  Conversely, if the reluctance to grant the original planning permission was as a result of a fear or concern that did not materialise, then perhaps the path to extension might be smoother.  Although not a material consideration on the grant (or not) of planning permission, many commercial solar farm (and other renewable installations) will have contributed to community benefit funds and so public attitudes to hosting such schemes may have softened over the intervening period.

Also consider any recommendations, conditions or concerns raised in an Environmental Impact Assessment conducted in the process of obtaining the original planning permission. If any conditions have not been complied with or the negative environmental impacts have been worse than expected, the Local Planning Authority is unlikely to be encouraged to grant further planning permissions. Similarly if the project is shown to have complied with all of the conditions and had greater environmental benefits (or lesser environmental dis-benefits) than expected, the LPA will be more inclined to grant a further planning permission (or an extension to the current permission).

Whether an application for planning permission will be successful or not is also highly dependant on the political climate and the government’s priorities. Changes in government or changes in the understanding of the benefits and risks of solar farms could impact the likelihood of being able to obtain further planning permission. These factors could influence the timing of  an application.

A developer will need both a new lease and new planning permission to continue to run a solar farm. Managing the timings of negotiating a new lease and applying for planning permission carries risks. Remember that planning permission is granted in favour of the land, not the individual making the application. If a developer obtains an extension, but does not secure a new lease, the landowner will have the benefit of planning permission but the developer will have wasted time and money obtaining it.

Agreeing to a new lease or to extend the term before planning permission has been obtained, similarly carries the risk of agreeing to pay a premium for the land in circumstances where it may not thereafter be possible to use the land as a solar farm.

Leases can be made conditional on a developer obtaining planning permission but, again, if  permission is not obtained then the developer will have gone through the time and expense of negotiating a new lease with the landowner but be unable to use it.

Easements and substation leases

The lease over the relevant land and the planning permission to use the land for a solar development are likely to be a developers two key considerations. There are, of course, other supplemental and ancillary points to consider such as:

• Cable easement – the lease should contain an easement which allows for the necessary cables and conducting media to be run over or under the land of the landowner. When the term of a lease is extended, which causes a surrender and regrant, the new lease will have the same terms as the surrendered lease, including the existing easements. If an option to renew is used, either an existing option or a new option, this should provide for the terms of the new lease and include the necessary easements. Therefore, it should be relatively straightforward to carry these easements into the new leases.

Easements which are granted over land adjoining the solar development by a third party directly to a developer are usually granted by a deed of easement for a fixed term, which is most circumstances mirrors the term of the lease. The extension of the term of a lease by a surrender and regrant or the exercise of an option to renew will not amend the term of the deed of easement. Accordingly the deed of easement would expire before the term of the new lease and steps would need to be taken to ensure that the term of the easement was also extended. This would require a Deed of Variation and the co-operation of the third party, which could present a potential issue.

The advice set out above is dependant on the easements being properly granted and protected in the first instance, and it is important to check the relevant provisions carefully.

• Substation Leases – Substation leases are typically long leases with security of tenure provided by the Landlord and Tenant Act 1954. They should, therefore, outlast the duration of the lease of the land for the solar project, although this should be checked. Many substations are adopted by distribution network operators and therefore this is not a major concern.
• Grid connection agreements – these agreements connect the power generated by the solar development to the National Grid electricity network. Typically these agreements are not subject to a time limit and so will continue apply when the term of the lease is extended, however it would be prudent to check the grid connection agreement to ensure there are no time considerations.

Landowners – Selling the Site

All of the above is based on the assumption that the landowner is agreeable to the developer continuing to run the solar farm for a longer term.

We have encountered a number of instances where landowners have been approached by a second developer who has offered to buy the land and capitalise the rent due under the existing lease for the remaining lease term. This can be an attractive option for landowners, particularly if the land being used for the solar farm is not particularly valuable farming land or otherwise, since the landowner can sell the land (for agricultural value) and have immediate access to a proportion (typically around 80%+) of the income that they would have received during the course of the term of the lease.

Careful consideration is required in respect of any resulting tax liabilities and specialist advice should be sought.

Conclusion

Determining the best way to extend the term of a solar farm is something that we are dealing with more frequently, as the solar market progresses in the subsidy free era. It is important that you take legal advice on which option will work best for you. The same will apply for all other technologies (for example wind).