Balancing photovoltaic installations and owner easements - International Law Office

Background
Recent case
Comment

Background

Photovoltaic installations are often erected and operated on land which does not belong to the operator of the installation. Instead, usage contracts are agreed (eg, lease contracts) to enable a plot of land owned by another party to be used for a certain period. For the installation operator, this regularly raises the question of what security it can provide to the bank which finances the installation, because it is invariably impossible to create a land charge against the third-party land on which the installation is erected unless the landowner grants its approval. One option would be a transfer of ownership of the installation to the bank as security. However, this can be problematic because, under Section 94(1) of the Civil Code, buildings or objects which are firmly connected to the land become integral parts of the plot of land, and thus automatically become the property of the landowner. If this were the case, the photovoltaic installation would be the property of the landowner and thus would no longer belong to the installation operator, so the operator could no longer assign it to the bank as security. The same applies to wind turbines.

However, a photovoltaic installation or wind turbine can be assigned individually as security if it is not an integral part of the land, but rather is only a temporary non-integral part as defined in Section 95 of the Civil Code. According to Section 95, such items are not integral parts of a plot of land; they are temporary non-integral parts if they have been connected with the land only for a "temporary purpose" or by "exercising rights to third-party land" by a party entitled to do so. For this reason, a limited personal easement is normally registered against the third-party land in favour of the installation operator. The photovoltaic installation is then connected with the land only by "exercising rights to third-party land" as stipulated in Section 95(1)(2) of the Civil Code, so it can be assigned to the bank separately as security as a temporary non-integral part of the land.

Recent case

The Munich Higher Regional Court recently had to decide whether, and in what circumstances, a landowner which wishes to erect a photovoltaic installation on its own land and not on third-party land is entitled to approve and register an owner easement to ensure that it can continue to operate the installation even after the sale of the land.

In its ruling of September 30 2011 (34 Wx 328/11) the court held that such registration of an owner easement was possible even if the existence of a special protectable interest in the creation of the easement had not been proven to the Land Registry.

Facts
The owner of a plot of land on which a building had been constructed intended to erect a photovoltaic installation on the same land. Before constructing the installation, he laid down in a notarial deed that the photovoltaic installation was being erected on the roof of the building for a limited time and for a temporary purpose, and that it would therefore not constitute an integral part of the building. By this means it aimed to ensure that the installation, as a temporary non-integral part of the building, could be assigned to the financing bank as security. In view of the fact that feed-in remuneration under the Renewable Energy Act is guaranteed only for as long as the installation is operated on the building, the owner considered that there was a particular need to ensure the permanent unhindered operation of the installation – especially but not only in the event of a compulsory auction. Therefore, the landowner granted itself approval for a special personal easement for the right to erect, operate and use a photovoltaic installation on its land.

However, the Land Registry did not register the easement because it considered that there were insufficient reasons for the registration, particularly with regard to the protectable interests for the owner easement. It stated that such reasons must involve more than a precaution against compulsory auction. In the registry's opinion, even the fact that the installation was assigned to the bank as security did not justify a sufficient legitimate protectable interest, because the installation had become an integral part of the building in spite of the provision in the notarial deed. Therefore, the assignment as security was ineffective in any case.

The owner, on the other hand, argued that the installation should be commercially marketable as an independent item even after it had been erected. It argued that creation of a right in rem was necessary for commercial marketability.

Decision
The Munich Higher Regional Court followed this argument. In its decision, the court argued that the creation of an owner easement for a photovoltaic installation operated on the owner's own building requires only the possibility of a legitimate protectable interest. However, it stated that actual proof of such a legitimate interest is necessary. The court thus followed case law of the Federal Court of Justice on owner's usufruct. The Higher Regional Court considered that this ruling of the Federal Court of Justice on owner's usufruct was also applicable to owner easements. The court agreed that the unlimited possibility of registering owner rights was problematic in land registration law because the Land Register must be kept free of unnecessary entries. However, in view of the costs of creating and registering such a self-granted right, the court suggested that it could normally be assumed that an application for unnecessary entries would remain an exception.

The court agreed with the Land Registry in finding questionable the argument that the photovoltaic installation was to be assigned to the bank as security, and therefore the registration of an owner easement was necessary to prevent the installation becoming an integral part of the land. In regard to the applicability of Section 95(1)(2) of the Civil Code, the court observed that the requirement that the installation be connected to "third-party land" was not fulfilled.

However, the court considered that it was still possible that a legitimate interest existed in this case, because it could not exclude the possibility that the landowner might wish to sell the land but continue to operate the installation. Particularly in view of the contracts concluded with the energy supply companies - which are often for a long term - the court suggested that there could be an interest in continuing to use the photovoltaic installation even after a sale of the property. Here the court opined that it was unimportant whether the installation was classified from the outset as a temporary non-integral part or as an integral part of the property. It suggested that an easement which defines the use of the land itself, or an integral part of the land, could also be useful. To guarantee the later operation of the installation, it held that the possibility of a legitimate protectable interest in creating a limited personal easement could not be excluded.

Comment

If the criterion to recognise the installation as a temporary non-integral part of the property is that the installation is erected by "exercising rights to third-party land", and if this is normally achieved by creating a limited personal easement in favour of the installation operator, this leads to the question of when the limited personal easement must be approved or registered in the Land Register in order to fulfil the criteria for recognition as a temporary non-integral part of the property. This question is not consistently answered in case law. Previously, the courts tended to assume that an installation was a temporary non-integral part only if it was not erected until after the registration of the limited personal easement in the Land Register; however, other approaches have since been adopted. For example, some courts now consider it sufficient if the registration of the limited personal easement occurs before the installation is erected on the third-party land. If the installation is erected after the consent to the easement, it is nevertheless deemed to be a temporary non-integral part of the property, which means that it can be assigned separately as security. The Munich Higher Regional Court considered that it was unimportant whether the installation was deemed to be a temporary non-integral part from the outset or whether it had become an integral part of the property. This could be seen as an indication that the court has adopted an even broader point of view and considers an installation to be deemed a temporary non-integral part of the property even if the installation is erected before the consent to the limited personal easement. However, the conclusions are unclear, so it remains to be seen how case law will develop in this area.

For further information on this topic please contact Sonja Braun at SIBETH Partnerschaft by telephone (+49 89 38 80 80), fax (+49 89 38 80 82 02) or email (s.braun@sibeth.com).