Legal due diligence

Legal due diligence

Before making a large PV investment, it is recommended to carry out a legal review of the project requirements. Learn what your lawyer should look for to avoid legal entanglements.

The acquisition of a PV system, a project, or a project company is a considerable investment which should be accompanied by as few risks as possible. In order to uncover and evaluate legal risks at an early stage, legal due diligence, i.e. a comprehensive legal review of all existing documents, should be carried out before making any acquisition. Potential pitfalls must first be identified before they can be eliminated or reduced to a reasonable level. If a risk cannot be avoided, it can be factored into the purchase price if necessary. If this is not an option and the risks are categorised as deal-breaking, it may be wisest to refrain from investing.

Before starting this review, the PV system or PV project provider must compile the existing documents and either deliver them or upload them to a data room for the parties and their legal representatives to access. The lawyer carrying out due diligence will then start by checking that the documentation is complete and, if necessary, requesting any documents that are still missing.

Is the site secured?

An important part of the substantive inspection is securing the land. This involves a review of the current land register excerpts, property survey maps, existing leasing contracts, and easements so that it can be determined whether all areas required to install and operate the PV system are contractually and materially secured (i.e. by entering easements in the land register). You should keep in mind that this must also cover the areas potentially required for attendant facilities and grid connection. Risks arising from the leasing contract are also examined, in particular whether it is even valid and whether it might be terminated at any point during the planned period of operation, e.g. due to the violation of formal requirements. Should risks be uncovered here, they can be eliminated by means of an addendum with the landowner.

Is the remuneration secured?

Another important item to check is the system’s eligibility and subsidy level according to the EEG. For existing systems, sufficient evidence must be available to confirm commissioning on the date stated in the sale details and eligibility requirements be met. If, on the other hand, the PV system must first be built, the lawyer will examine the corresponding construction contract to ensure that the implementation deadlines permit the desired commissioning date. Depending on the system type, the lawyer will also inspect the necessary land surveys and permits and check for potential risks. This process should ideally be accompanied by additional securities, such as rights of withdrawal and performance guarantees. With regards to energy laws, it is also important to secure the grid connection for systems that are still to be built.

Are all other project contracts in order?

Depending on the project, corporate and financial supervisory law may come into play. All other existing contracts (e.g. maintenance contracts, direct marketing contracts, urban development contracts, grid connection contracts, cooperation agreements and terms of guarantee from component manufacturers) should be examined and – if necessary and possible – (re)negotiated.

Traditionally, the results of due diligence are summarised in a due diligence report. However, a summary of the identified risks in a spreadsheet or PowerPoint presentation can also be considered, to save on time and money. The end result should enable the investor to recognise the possible risks, their probability of occurrence, and the expected amount of damage in the event that such a risk occurs. The investor should be able to make an informed purchase decision on this basis and avoid unforeseen costs that might otherwise seriously jeopardise the profitability of the investment.

This article was written with the support of Dr. Katrin Antonow, counsellor-at-law at the office of Bredow Valentin Herz.

This article was published in our investment guide. For all other articles and information on Direct investment in commercial-sized photovoltaic systems, please visit: Milk the Sun – PV Investment Guide.