Especially when concluding utilisation agreements with landowners for securing land for wind farms and solar parks, it is important that ordinary termination by the landowner is excluded for a long period of 20 to 25 years. This requires that the agreement on the term of the contract contains an effective time limit for this period. This is because tenancy agreements without such an effective time limit can be terminated with due notice at any time (§ 542 BGB).
Unclear regulations can lead to cancellability
We show which requirements are stipulated by case law for an effective limitation of the contract term in land use agreements for EE plants.
Example of a clear regulation
It has proven to be an unproblematic and clear regulation if the start and end of the contract term are clearly defined.
‘The contract begins when it is signed by both parties and ends 30 years after the start of the contract.’
In this example, the start of the contract can be determined by the date on which the contract was last signed. The end of the contract can also be calculated without difficulty: 30 years after the start of the contract.
Example of a problematic regulation
The beginning and end of the contract term is less clear and therefore more difficult to determine in cases where the contract term is only to begin with a future event, although it is not yet clear at the time of signing whether and when this event will occur.
‘The contract begins when it is signed by both parties and ends 25 years after the system is commissioned on the property.’
This provision is often used in land contracts for wind and solar projects, as it is not yet clear at the time the contract is signed how long it will take for the plant to be commissioned. However, in most cases it is also uncertain at the time the contract is signed whether the plant will be erected and commissioned at all.
However, the legal situation is as follows: If the contract term is linked to an uncertain event, the contract term is considered indefinite and the contract can be cancelled at any time. The occurrence of the (uncertain) event then acts as a condition subsequent for the indefinite term of the contract, and only from this moment, i.e. when the event occurs, is the contract deemed to be limited in time.
In concrete terms, this means for the clause: The contract can be cancelled at any time until commissioning. Only when the commissioning event actually occurs is the contract deemed to be for a fixed term and ordinary cancellation is excluded from this point onwards.
Overall view of the contractual situation
It is worth noting that various higher regional courts have reached different decisions on the question of whether the clause from the second example effectively limits the contract and can therefore exclude ordinary termination. What the rulings have in common is that not only the provision on the contract term itself is considered, but the contractual situation as a whole is taken into account, including the rights of withdrawal and termination agreed in favour of the property owner.
Right of cancellation cures problematic contract term clause (OLG Brandenburg from 2011)
The court found that the contract could be terminated at any time due to the contract term clause until commissioning, if only the provision on the contract term was taken into account.
In addition to the clause on the term of the contract in accordance with example 2, the licence agreement also contained a right of withdrawal for both parties in the event that construction of the plant was not commenced within 5 years of the conclusion of the contract.
The court stated:
‘Uncertainty about the occurrence of the event does not lead to uncertainty about whether the contract will ever end if the contract contains a provision to the effect that, if the event does not occur by a certain date, it can be terminated by unilateral declaration of one party, i.e. the exclusion of cancellation does not apply in this case.’
The contractual right of cancellation therefore meant that the ordinary cancellability of the contract was cancelled until commissioning. The entire contract was thus effectively limited in time and could not be terminated for cause.
The fact that the right of cancellation was based on the start of construction, whereas the provision on the term of the contract made the date of commissioning a condition, had no effect on this finding for the court.
Right of cancellation is also effective in general terms and conditions (OLG Karlsruhe from 2017)
n a similar case, the Higher Regional Court of Karlsruhe ruled that the agreement on the right of cancellation is also permissible under general terms and conditions law. In the specific case - as in the case of the Higher Regional Court of Brandenburg - it was agreed that both parties could withdraw from the contract if planning permission was not granted within a period of 5 years from the signing of the contract. In addition, the right of cancellation was excluded if and for as long as the project developer appeals against the refusal of the permit.
The court emphasised here that the period of a maximum of five years without payment does not unduly disadvantage the landowner, as he can continue to use his land for agricultural purposes and the project developer is simultaneously making high investments for the planning of the project
The court stated:
‘Five or more years is a manageable period of time, especially if one considers the considerable profit expectations of the defendant in the event of success.’
Right of cancellation violates GTC law and does not cure unclear contract term provision (OLG Hamm, judgement from 2020)
Like the Higher Regional Court of Brandenburg, the Higher Regional Court of Hamm came to the conclusion that, based on the clause in the second example, the period up to the commissioning of the system must be interpreted as unlimited. However, in contrast to the Higher Regional Court of Brandenburg, the Higher Regional Court of Hamm found the cancellation provision agreed in the contract to be invalid, meaning that the cancellation provision could not remedy the unclear contractual term provision.
The court paid particular attention to the possible grounds for excluding the property owner's right of cancellation. The contract contained the following grounds for exclusion:
if the owner has not fulfilled his contractual obligations,
if the operator has started to pay the minimum usage fee before exercising the right of cancellation regardless of the due date,
if the construction of the systems is delayed for reasons for which the operator is not responsible.
The court's reasoning in detail:
The lack of a time limit in the clause on the term of the contract could have been remedied if the parties had agreed an effective exclusion of cancellation until commissioning.
However, there was no express contractual exclusion of cancellation for the period up to commissioning.
The agreement on the right of cancellation is not sufficient either, as cancellation triggers a different legal consequence than termination.
Even if one were to assume here that the right of cancellation should be excluded by the cancellation provision, the cancellation provisions in the contract are inadmissible because they violate the law on general terms and conditions.
In the opinion of the court, the cancellation provisions were unreasonably designed to the detriment of the property owner for the following reasons and were therefore invalid:
The occurrence of at least one reason for the exclusion of the right of cancellation was quite probable and not appropriately structured in itself:
The right of cancellation applies to breaches of duty that occur through no fault of the owner, as well as to a single culpable breach of duty by the owner, regardless of the importance of the breached duty.
The right of cancellation shall not be revived even after the breach of duty has been cured.
The right of cancellation is also not revived if the project developer pays the fee before the due date but then stops payment again.
And even if the licence holder starts paying the fee before the due date, he could reclaim the fee in the event of cancellation, as no contractual exclusion of repayment has been agreed.
This assessment led the court to consider the contract term until commissioning to be virtually indefinite.
In addition, in the opinion of the court, the landowner only suffered disadvantages during this (unlimited) period, as he was subject to contractual obligations without being remunerated for them.
Conclusion
If the decision is made to structure the contract term in accordance with the second example, great attention must be paid to the drafting of the contract with regard to cancellation and termination rights. Superficial, unclear or one-sided provisions favouring the project developer can jeopardise the purpose of the contract, namely the long-term securing of space.
Our recommendations for drafting your contract
Clear limitation of the contract term until there is clarity about the construction of the plant.
Although this limits the planning period, the ordinary right of cancellation is clearly excluded for this period due to the time limit.
Alternative: Agreement of an indefinite period until construction / commissioning, but for which a fee is paid. The payment must not be repayable in the event of premature termination of the contract. In addition, contractual exclusion of the right of cancellation for the period up to commissioning, for example.
This prevents the property owner from being disadvantaged, as they are already subject to obligations prior to commissioning. Nevertheless, there is a certain risk that the provision on the exclusion of ordinary termination will be considered to be contrary to the General Terms and Conditions.
Alternative: Agreement of an indefinite period until construction / commissioning. No obligation to pay a fee, but a right for the concessionaire to pay a fee under narrowly defined circumstances and thus to be able to exclude cancellation. Care must be taken here to formulate a clear and appropriate right of cancellation that replaces ordinary termination. In addition, contractual exclusion of the right of cancellation.
However, it should be noted that without the obligation to pay a fee, there is a higher risk that the provision on the exclusion of ordinary termination is contrary to the General Terms and Conditions.
If you have any questions on the above topics, please do not hesitate to contact us - we look forward to hearing from you.