Once an abundant source of renewable energy such as sunlight or wind has been identified in a particular region, developers need to secure access to the land for the duration of the envisaged renewable energy project. Generally this can be done by acquiring or leasing the land. This is according to Daniël Fÿfer, Director in the Real Estate Practice at Cliffe Dekker Hofmeyr business law firm.

Fyfer explains, “The land in question is usually agricultural land and because farmers, who typically bequeath their farms to the next generation, may be reluctant to sell their farms, leasing the land is a more typical solution.

He says that leases of 10 years or longer (Long Term Leases) are specifically regulated in South Africa. Section 1 of the Formalities in respect of Leases of Land Act provides that a Long Term Lease of land will be only be enforceable against third parties if the lease has been registered against the title deed of property. A Long Term Lease, once registered, is deemed to be immovable property, and a mortgage bond can be registered over it.

“Often only a part of the land is identified as being suitable or necessary for carrying out the renewable energy project, but leasing only a part of the land raises additional complexities,” he explains.

Fyfer says that the Subdivision of Agricultural Land Act 70 of 1970 prohibits the subdivision of agricultural land or the leasing of a portion of agricultural land for a period of 10 years or longer, without the Minister of Agriculture's prior consent. The Surveyor General will not approve a diagram for a portion nor does the Deeds Registries Act allow for the registration of the lease without the Minister's consent prior to the lease agreement being entered into over a portion.

“Our courts have recently determined that a contract in respect of a portion agricultural land, that was entered into prior to obtaining the Ministers prior consent, was void from the outset.”

Fyfer says that the current practice is to deal with Act 70 of 70 in one or two ways.

“Firstly the developer can lease the whole property in terms of which the developer has the right to construct and operate the project on the land, but the farmer/owner retains the right to use the whole property for farming purposes of any other purposes agreed with the developer. Because the farm will be used for the project as well as for farming purposes, it will be necessary to apply for the whole property to be rezoned for special or mixed use purposes.

“Although this model appears to be the most popular, it has the disadvantage that the landowner and the mortgage bond holder have to agree to the lease being registered over the entire property for a long period of time,” Fyfer notes.

Tessa Brewis, Senior Associate in the Corporate and Commercial Practice says that the alternative involves entering into a lease over the entire property for a period of less than 10 years, which gives the developer access to the entire property in order to conduct the necessary viability tests to establish exactly where the project will be constructed, with the option to enter into a long term lease over the property or a portion of the land, pending the necessary ministerial approval. Once ministerial approval is obtained in respect of a portion of the land and if the developer exercises its option to enter into a long term lease, a long term lease will be registered over that portion.

“One of the difficulties with this model is that applying for ministerial consent will be a long and uncertain process. As yet, the courts have not tested the validity of either of these alternatives in terms of Act 70 of 70. Developers will have to carefully consider all the factors relevant to each particular piece of land when deciding which alternative to follow,” she adds.

For more information:
Daniël Fÿfer, Director, Real Estate, Cliffe Dekker Hofmeyr.
Tel: +27 (0)21 405 6084 or email Daniel.fyfer@dlacdh.com

Tessa Brewis, Senior Associate, Corporate and Commercial, Cliffe Dekker Hofmeyr
+27 (0)21 481 6324 or email: tessa.brewis@dlacdh.com

Andrea Collocott, Head: Marketing and Communication, Cliffe Dekker Hofmeyr,

Tel: +27 (0)11 562 1281

Notes:

· Cliffe Dekker Hofmeyr is one of the largest commercial law firms in South Africa with some 115 directors/partners and 250 qualified lawyers located at offices in Johannesburg and Cape Town.

· Cliffe Dekker Hofmeyr lawyers specialise in services covering the complete spectrum of business legal needs in 11 core areas of practice.

· The firm also has dedicated sector-led teams consisting of lawyers with experience in a wide range of industries and the public sector.

· Cliffe Dekker Hofmeyr is the South African member firm of DLA Piper Group, an alliance of legal practices, which includes firms with offices around the globe that are affiliated to members of the DLA Piper Practice but are not themselves members of it.

· Cliffe Dekker Hofmeyr's Africa practice, in conjunction with DLA Piper Africa Group, is unrivalled in terms of pan-African legal services and geographical coverage.

· DLA Piper is an international legal practice with over 3,500 lawyers located in 30 countries and 69 offices throughout Asia, Europe, the Middle East and the US.

· For further information, please visit www.cliffedekkerhofmeyr.com