Unknown unknowns – whose problem are they?

The increasing drive for renewable energy developments has created an explosion in legal work needed to document the rights required by the renewables operators over land. Within those negotiations, the balance of power between landowner and developer needs careful thought.

Typical transactions involve a landowner granting to the developer an option for lease and perhaps separate rights to lay high voltage cables. There are also areas of the country where offshore wind developments are connecting to onshore substations via onshore cable connections.

Although they are sometimes granted with a threat of statutory compulsion in the background, such arrangements are essentially private negotiations between the landowner and the developer, and it is for each party to seek the most attractive commercial terms they can.

One issue which often rears its head is the cap on liability sought by renewables developers. In essence, they say that whatever they do to the land, they are only liable to compensate the landowner up to a specific financial cap. The figure generally offered by renewables developers is £10,000,000 as that fits nicely with their standard insurance cover.

At first sight, that seems to be a great deal of money, especially when it is increased during the term of a 40 year lease at five yearly intervals, as is often the case. But does a landowner accepting that figure, or a land agent agreeing it for their client really know that this will be sufficient to cover every possible loss?

The problem is that no-one really knows the answer to this question. New materials are being developed and used and will be laid underground for many years, perhaps permanently. Are they truly inert? We don’t need to delve too far back into the history books to find a time when asbestos was the new magical material, and we were blissfully unaware of the associated health risks. The same could be said of cladding, and of nicotine.

So imagine a time, maybe 30 years hence, when a material used in the construction or installation of cables has been found to have a polluting effect and has contaminated groundwater and drinking supplies. The landowner is sued for compensation and remediation costs and seeks to recover those costs from its renewables developer. Does £10m, or £20m seem an adequate figure?

The only logical response to that is “who knows”?

This scenario might seem unlikely but the moral of the story is that there are plenty of unknown unknowns where new technology is involved. Landowners should enter into such arrangements with their eyes open and negotiate the best deal they can. That can involve increasing the liability cap to the highest figure a developer will accept, or perhaps requiring the developer to fund an increased insurance policy for the landowner during the term of the lease. Above all, be aware of the risk.