15.3.2024
ENERG
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Property law considerations when building a solar power plant

Renewable energy has an important role in achieving binding climate targets by 2030 and climate neutrality by 2050. EU Member States’ policies, including Slovenian policies, are therefore focused on promoting electricity generation from renewable energy sources. As the percentage of solar sources in the energy mix has been increasing in recent years, along with the number of public tenders for subsidies for the construction of solar power plants, this article focuses on the property law issues that may arise when constructing and financing a solar power plant.

1. When is a solar power plant considered movable property and when immovable property?

To begin with, we can ask ourselves the basic question of whether and under what conditions a solar power plant is subject to property rights as an individual movable object, or under what conditions it is an element of the immovable property on which it is installed.

According to Slovenian case law,[1] the answer to this question requires an assessment of whether the objects on the property are permanently joined with the property for their intended purpose. Temporarily or incidentally placed objects which, by their function, are not intended to be used permanently on the immovable property and whose purpose and function are not directed towards a specific immovable property do not form part of the immovable property. Furthermore, it is necessary to assess how organic the link between the object and the immovable property is. In the case of components of immovable property, there must be a permanent link between the object and the immovable property such that the object can no longer be mechanically separated from the immovable property without damaging or interfering with its economic substance.

In most cases, a solar power plant[2] is not a component of immovable property, but an individual movable object that can be the subject of individual rights in rem.[3] On the other hand, an integrated rooftop photovoltaic system, which is both a roofing and an installation, could in particular be a component of immovable property,[4] since if it were to be removed, the building would be left without a roof. The immovable property, as the main object, would therefore be considered incomplete or unfinished without its component parts.[5] However, a roof can certainly fulfil its purpose without a solar power plant, which at most complements or adds to the building, while the building remains complete and functional without it.

2. Solar power plant installed on foreign property

If a solar power plant is treated as an independent movable object, the owner of a solar power plant installed on foreign property has a right of exclusion in the event of the bankruptcy of the owner of the property. Furthermore, it is not considered that the ownership right or any mortgage or other encumbrance on the immovable property extends to the solar power plant. Nor will it be permissible to enforce an otherwise pending execution against the owner of the real property against the installation of the solar power plant, irrespective of its ownership.[6]

3. Easements and right of superficies

In practice, the institute of easements and right of superficies are used for the construction, installation and operation of a solar power plant on foreign property. It is therefore important for the holders of these rights to be aware of the legal risks arising from the rules on the compulsory termination of these rights in enforcement and bankruptcy proceedings on the property where they are established.

3.1. Quasi real easement

A quasi real easement is an easement that has elements of both a real and a personal easement. It is similar in substance to an easement in rem in that it is a derivative right in rem over a foreign object, but the point of contact with a personal easement is that a quasi real easement is created for the benefit of a specific person, rather than for the benefit of each owner of the dominant land.[7]

In the case of a solar power plant, a quasi real easement therefore gives the holder certain rights over the foreign property, which are governed by the easement agreement, e.g. the right to build, install, maintain and access the solar power plant. According to case law, this also means that the property owner would be interfering with the easement if it were to remove the solar power plant when the roof is renovated. In addition, as a general rule, the property owner will have to bear the costs of the roof rehabilitation itself, unless the easement agreement requires the easement beneficiary to pay the costs of roof repair.[8]

3.1.1. Risks of a quasi real easement with a ranking order after a registered mortgage

There is no uniform view in legal theory and case-law on the legal regime applicable to the rules on the compulsory termination of quasi real easement in enforcement and bankruptcy proceedings on immovable property. According to the stricter interpretation of the ZIZ[9] and the ZFPPIPP,[10] where the ownership right in immovable property is limited by a mortgage or a land debt, its forced sale is carried out in order to enforce a priority right of repayment. In that case, a non quasi real easement shall, by reason of the preclusive effect of the enforcement of the mortgage, expire if the easement was acquired after the moment from which the registration of the mortgage or land debt in question takes effect.[11]

It should further be noted that the mere termination of the easement will not affect the ownership of the solar power plant, as the easement beneficiary will retain ownership of the solar power plant despite the termination of the easement. In such a case, the beneficiary may have to remove it from the property sold or may have to agree with the new owner on the conditions under which it may remain on the property.

The provisions of Article 174 of the ZIZ and Article 342 of the ZFPPIPP provide for an exception to the priority principle laid down in Article 6 of the SPZ, according to which earlier or older rights in rem have priority over later or newer rights in rem. If the easement in rem does not constitute an ‘urgent route’ in substance, or if it is not a public utility easement or other easement acquired by virtue of an administrative provision, the exception does not apply. Therefore, private quasi-easements should also not be considered as such exceptions.[12]

Prior to the amendment of the ZIZ-L, the relevant part of Article 174 of the ZIZ states that easement rights on immovable property shall not be extinguished with the sale of immovable property. However after 25 March 2018, certain conditions apply for an easement in rem to exceptionally “survive” a sale. Thus, a contractual easement with a subsequent order of priority does not lapse in the event of foreclosure of the immovable property if the existence of the easement is agreed by the lienors no later than by the issue of the order on sale.[13] Therefore, the easement beneficiary is advised to obtain notarized and unconditional and express permission and consent for the registration and existence of the easement on the encumbered immovable property from all lienors with a higher order of priority than the order of priority of the easement in rem.

In addition, these risks can be eliminated by sealing the mortgage. Indeed, every secondary right includes the right of the beneficiary to waive that right. The beneficiary may also waive the mortgage only partially, in order to seal it and thereby reduce the scope of the rights contained in that right. A mortgage may thus be extinguished by the lienor subordinating the order of his right of repayment to a quasi-easement by means of a certified land registration permit and the entry of the extinguishment in the land register.

3.2. Right of superficies

A right of superficies is understood as a derivative (limited) real right in rem over foreign immovable property, which gives the beneficiary the right to have or to construct a building on, over or under the foreign property.[14]

In the case of a solar power plant, a right of superficies gives its holder the widest range of rights over foreign property, as the right of superficies gives rise to a right of ownership over the solar power plant.[15] In particular, a right of superficies for the installation of a solar power plant is created in cases where, under the rules on the constituent elements of immovable property, the solar power plant would otherwise be considered to be part and parcel of the immovable property. In other words, a right of superficies is used when, in its absence, the principle of superficies solo cedit would be established.

If, in view of the nature of the installation, the solar power plant is exceptionally considered as a component of the immovable property, the institute of a right of superficies also serves as a protection for the investor of a solar power plant on foreign immovable property in case the immovable property is subsequently mortgaged. Namely, if in such a case no right of superficies is established on the property, the solar power plant will be mortgaged together with the property.

3.2.1. Risks of the right of superficies with ranking after a registered mortgage

If the right of ownership in immovable property is limited by a mortgage that was acquired after the time from which the acquisition of the mortgage in question takes effect, the mortgage shall be extinguished by the enforcement of such mortgage in insolvency proceedings.[16] If a solar power plant were installed under such a right of superficies, the buyer’s title to the property would extend to the solar power plant after the sale. This assumes that the right of superficies to install the solar power plant was created because it would otherwise be considered part and parcel of the immovable property under the rules on the constituent elements of immovable property.

This risk can only be eliminated by sealing the mortgage in a similar way as described above in point 4.1.1.

4. Conclusion

The determination of the real property aspects relevant to the construction of a solar power plant on foreign property is primarily determined by the classification of the solar power plant as either movable property or as a component of immovable property, as appropriate in the light of the facts. Further, it is important to understand and regulate the risks arising from the implications of forced sales of real property on the institutes of quasi real easements and right of superficies when a power plant is built on foreign real property.

[1]     Supreme Court judgement, No II Ips 168/2018 of 24 December 2017.

[2]     Planinšek, N. and Planinšek, J.Č Solar power plants – more interesting legal issues, Pravna praksa, No 2, 2017, p. 23.

[3]     Higher Court in Celje decision, No II R 26/2014 of 13.8.2014.

[4]     Renato Vrenčur, Building rights in business practice, Podjetje in delo – 2013, No. 5, GV Založba

[5]     Juhart, M., et al: Property Code with commentary, Uradni list RS, Ljubljana 2016, p.78.

[6]     Renato Vrenčur, Building rights in business practice, Podjetje in delo – 2013, No. 5, GV Založba

[7]     Juhart, M., et al: Property Code with commentary, Uradni list RS, Ljubljana 2016, p. 1085.

[8]     Judgment of the High Court of Ljubljana, Case No I Cpg 394/2021 of 22 February 2022.

[9]     Enforcement and Security Act (Official Gazette of the Republic of Slovenia, No 51/98, as amended, “ZIZ“).

[10]    Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Official Gazette of the Republic of Slovenia, No 126/07, as amended, “ZFPPIPP“).

[11]    Plavšak, N.: Commentary on the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (ZFPPIPP), Tax-Fin-Lex, Ljublljana, 2017, p. 736 and 737.

[12]    Vrenčur Renato, Lien, Company and Work, No. 6-7, 2019, p. 1112

[13]     Article 174(1), second indent, Property Code.

[14]    Juhart, M., et al: Property Code with commentary, Uradni list RS, Ljubljana 2016, pp. 1181-1185.

[15]    Vid Indihar Veličkovič, Installation of solar collectors on a foreign property (Master’s thesis), Ljubljana, 2021.

[16]     Article 342 ZFPPIPP.