Landowners need not carry professional costs for aborted energy schemes

Landowners who are entering into agreements with energy developers should make sure that the agreement includes an undertaking for their professional fees to be covered by the developer. Otherwise, if the scheme does not go ahead the landowner could end up paying high professional costs.

At Roadnight Taylor, we are frequently approached by landowners who have already signed letters of authority with developers and are then being asked to sign Heads of Terms – generally referred to as HoTs – which set out the main terms of the option to lease and lease agreements. The detailed draft option agreement then follows, but it is at the HoTs stage that the landowner should be seeking help with reviewing documents – as whilst not normally legally binding, they do set expectations that it can be challenging to row back from.

Richard Palmer, our Senior Consultant, says, “We are seeing a lot of landowners being presented with HoTs at a very early stage in the project, before there is any real level of confidence that the scheme will even get as far as an option to lease.”

It is crucial, therefore, for landowners to protect themselves from having to pay their land agent and lawyers’ fees if the scheme does not go ahead. Fees could vary from £5,000-£15,000 or more.

Richard says, “Sadly, we’ve seen cases where the landowner has ended up out of pocket when a developer goes cold on a scheme, after what the landowner thought could have been a very lucrative lease contract.”

Richard continues, “It’s currently not a standard in the energy developer industry that abortive fees are included in agreements. But it should be. The cost of covering landowners’ professional fees is small for the developer compared to the final cost of the project. The landowner should not be exposed to any cost or risk. It should be the developer’s risk for having a valuable grid offer to progress forward.

“There has to be change in the way abortive fees are approached. There should be an industry standard among energy scheme developers that their Heads of Terms include an undertaking to pay for all landowners’ professional fees, irrespective of the outcome. This is something we insist on when we are advising a landowner. The fees should be capped at a sensible level, so they don’t run away with themselves, and become an industry norm. That way no time and effort are wasted in arguing over fees, and the landowner doesn’t lose out.”

At the very least, a land agent should take responsibility themselves for ensuring that the Heads of Terms include a clause for developers to cover landowners’ professional fees – whatever the outcome – or the agent should accept the risk of not being paid for their advisory work.