Power struggles – safeguarding renewable assets from financial distress

What are we seeing in the market?

It is no secret that corporate insolvencies increased in 2024 and are expected to be prevalent throughout 2025 – fuelled by a cocktail of higher interest rates, wage increases, labour shortages and persistent inflation. CreditorWatch’s November Business Risk Index¹ identified that insolvencies are at record highs in number and were up 57% for the year to November 2024, forecasting a challenging 2025.

Amidst this outlook, renewable energy proponents that seek to nurture a long-term relationship with host landowners are more perceptive to the risk of landowner insolvency. As the market moves in cycles, the risk that a landowner may experience an insolvency event is not a remote possibility, given how the lease arrangement is meant to govern the parties’ interconnection for decades.

We see renewable energy proponents increasingly seeking guidance on how competing interests in tenant-built infrastructure can be reconciled, particularly where either:

the landowner’s mortgagee chooses to exercise its powers; or
where the landowner is subject to a formal insolvency process such as a voluntary administration, receivership or, ultimately, liquidation.

This article explores this issue through:

analysing recent court decisions on the characterisation of renewable energy infrastructure;
considering the interplay between this infrastructure and the powers bestowed on a landowner’s mortgagee or insolvency practitioner; and
providing some recommendations to proponents looking for effective ways to protect valuable project infrastructure.

Renewable infrastructure – fixture or chattel?

When assessing whether an asset is a fixture or chattel under common law, the Courts have traditionally only looked to the degree of annexation of the item on the land. Recently, a more modern approach has emerged from case law placing a heavier emphasis on the person’s intention when putting that item on the land.
When considering the:

degree of annexation, a person should consider whether removal of the asset would damage the land, the cost of that removal and the mode and structure of annexation (i.e. how fixed that item is to the land); and
function of annexation, a person should consider whether the asset was affixed for the better enjoyment of the land or for the asset itself, whether the asset was to be in the position permanently or temporarily and what purpose was to be served by that annexation.

The decisions in AWF Prop Co 2 Pty Ltd (as trustee) v Ararat Rural City Council [2020] VSC 853 (AWF Case) and SPIC Pacific Hydro Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 395 (SPIC Case) suggest that the classification of renewable infrastructure as either a fixture or chattel is yet undetermined.

In the AWF Case, the wind farm project consisted of 75 wind turbines, a substation, a multi–purpose management and administration building, a storage shed, a hazardous materials shelter, wind-monitoring masts, access roads, fences, underground electrical and communications cabling and power and communication lines, all built at the tenant’s expense. The Victorian Supreme Court found that the above-ground assets, being all items of infrastructure (apart from the turbine foundations, the roads, the fences and the underground cabling) were chattels and not fixtures.

In the SPIC Case, the New South Wales Supreme Court determined that the wind turbine generators and met masts, together with the infrastructure affixed to the land, were “tenant’s fixtures”, not chattels. Under common law, a “tenant fixture” gave the tenant the right to sever and remove that asset from the land during lease term. However, until such time that the tenant severs and removes that asset, they form part of the land (i.e. they belong to the landlord). Relevantly, the Court also held that the tenant’s fixtures were bundled up in the rights held by the tenant under the lease and governed by the terms of the lease in addition to the tenant’s common law rights.

The decision reached in the SPIC Case is concerning for renewable proponents as it is unlikely that any tenant would want to transfer the ownership of any part of the renewable project to the landlord during the lease term. However, unless there is a specific statutory regime stating otherwise, since the fixtures are a part of the land, then they necessarily belong to the landlord during the lease term.

In Victoria (and relevant to the AWF Case), section 154A Property Law Act 1958 (Vic) provides tenants with relief that they retain ownership of tenant-built fixtures before the relevant agreement terminates or during any extended period of possession of the premises. Sections 153 to 157 of the Property Law Act 1974 (Qld) provide similar relief for renewable proponents in Queensland (provided the premises meets the definition of a ‘holding’ under that Act). As at the date of this article, there remains no statutory provision offering similar relief to proponents in New South Wales.

Host landowner’s mortgagee’s rights to fixtures and power of sale

As a general rule, a tenant’s right to remove fixtures cannot be exercised against a mortgagee of the land. This is because a mortgage over land extends to all fixtures attaching to that land both before and after the mortgage date. However, the mortgagee’s right to removal of fixtures can be managed or restrained by entering into an express agreement to allow for third parties (i.e. the person who owns those fixtures) to remove them. The mortgagee’s willingness to enter into such agreement may be dictated by a few factors, including the perceived value of the lease under which the fixtures were brought onto the land.

The mortgagee’s power of sale may also jeopardise a tenant’s interest in a lease. In every State and Territory, the mortgagee is not bound by any lease entered into after the registration of the mortgage, unless that mortgagee has provided its consent. Upon the giving of its consent, the rights of the mortgagee are subject to the lease. Once again, the mortgagee’s willingness to provide such consent is likely to be influenced by the perceived value of the lease.

Host landowner’s insolvency

A significant threat to long-term security for proponents also arises when the landowner becomes insolvent and an insolvency practitioner (such as a voluntary administrator, liquidator or receiver) is appointed to manage the landowner’s assets to satisfy debts owed to creditors.

Liquidators have broad powers to disclaim contracts (among other property) under section 568 of the Corporations Act 2001 (Cth) (Corporations Act), where retention of that contract would prevent or hinder a prompt and efficient winding up of the company’s affairs.² In Willmott Growers Group Inc v Willmott Forests Limited (Receives and Managers Appointed) (In Liquidation) [2013] HCA 51, the High Court determined that a lease is a “contract” for the purposes of section 568 of the Corporations Act. Consequently, a liquidator is able to disclaim a lease if the lease is an onerous contract (e.g. one where the burden of the contractual obligations outweighs the corresponding benefits), resulting in the land in question being no longer encumbered by the tenant’s leasehold estate and both the landlord’s and tenant’s rights under the lease being terminated. As to whether a lease is onerous will be dependent upon the obligations imposed on the company by the lease. In circumstances where a liquidator is appointed to a landowner (or lessor entity), long-term leases with lessee-friendly provisions (including below-market rent) are more likely to be disclaimed where the cost of maintaining the leased premises outweighs the benefit received by the landowner in continuing the lease.

Whilst not impossible, if a tenant wishes to challenge a liquidator’s notice of disclaimer and have it set aside, it must prove, under section 568B of the Corporations Act, that the prejudice caused by the disclaimer is “grossly out of proportion to the prejudice that setting aside the disclaimer would cause to the company’s creditors”. This is a high threshold to satisfy and poses significant difficulty in successfully overturning a disclaimer. In the absence of any successful challenge to a disclaimer, the tenant will be taken to be a creditor of the company to the extent of any loss suffered as a result of the disclaimer, and may prove for such a loss as a debt in the winding up of the landlord.³

Whilst voluntary administrators and receivers do not have formal powers to disclaim contracts as liquidators can, they may elect to repudiate contracts (including leases) requiring performance by the company if they deem the contract to be uncommercial. In the case of leases, in determining commerciality, a voluntary administrator or receiver appointed over a landlord entity will likely take into account factors such as:

the value of the land;
whether the tenant is willing to renegotiate the terms of the lease; and
whether the land can be sold or re-let on more favourable terms for the landlord.

In the event a voluntary administrator or receiver causes the landowner to repudiate a contract, the counterparty can seek to prove for damages caused by that breach of contract as a debt in any subsequent winding up of the company.

Preventative and mitigation measures – can justice prevail?

Having regard to the above issues, below are some recommendations which proponents may consider deploying to protect their rights in renewable infrastructure hosted on third party land:

prolong the tenant’s right to remove after lease termination or surrender. Case law relating to timing of a tenant removing its fixtures suggest that the prevailing view is that a tenant is entitled to remove fixtures for as long as that tenant lawfully remains in possession. Lease documents should therefore be carefully drafted to ensure the tenant is entitled to a sufficient grace period at the end of the tenancy to remove its infrastructure;
procure mortgagee consent to the lease. Proponents should already have in their lease documents a clear contractual obligation requiring the landowner to seek mortgagee consent to the tenant’s leasehold interest. In negotiating any deed of consent, specific provisions which acknowledge the tenant’s right to remove the tenant’s fixtures and/or chattels should be included and this right should continue for a reasonable period following the termination or surrender of the lease;³
registration of security interests on the Personal Properties Security Register (PPSR). Given the uncertainty around whether renewable infrastructure is a fixture or a chattel:
1. proponents who are tenants or licensees of real property should ensure that their lease and/or access arrangements with landlords clearly provide:
  1. that any relevant tenant-built infrastructure remains the property of the proponent (and not the landlord);
  2. that the proponent has the right to remove the relevant tenant-built infrastructure from the land; and
  3. that, to the extent that the landlord is deemed to have any ownership rights in the tenant-built infrastructure, the landlord grants a security interest to the proponent over that tenant-built infrastructure to secure the performance of the landlord’s obligations under the lease or other access documentation – and that the proponent may register that security interest on the PPSR (which the proponent should then do as soon as possible, and, in any event, by no later than 20 Business Days after the lease or access arrangement is entered into); and
2. for completeness, suppliers who may be supplying plant, equipment or other goods to a tenant of real property in connection with a renewables project should also ensure that the plant, equipment or other goods are supplied on terms:
  1. that provide that the plant, equipment or other goods remain the property of the supplier;
  2. that the supplier has the right to access the land (conferred by both the owner of the land and the tenant) – which may necessitate a tripartite deed between the parties; and
  3. that, to the extent that the landowner or tenant is deemed to have any ownership rights in the plant, equipment or other goods supplied by the supplier, it grants a security interest to the supplier over the plant, equipment or other goods to secure the performance of the landowner’s or the tenant’s obligations under the relevant documentation – and that the supplier may register that security interest on the PPSR (which the supplier should then do as soon as possible after the arrangements are entered into or, where necessary, delivery of the plant, equipment or other goods).

The purpose of the PPSR registrations noted above is to ensure that the secured party’s interest in the tenant-built infrastructure or supplied plant, equipment or other goods is recognised in the event of landowner or tenant insolvency (as applicable). For certain arrangements, the terms of the supply of plant, equipment or other goods may constitute a ‘purchase money security interest’ (or a ‘PMSI’) for the purposes of the Personal Property Securities Act (2009) (Cth) which, if properly created and registered, would have ‘super priority’ in respect of all other security interests granted by the landowner or tenant to the extent that those security interests also relate to the relevant plant, equipment or other goods which are the subject of the proponent’s PMSI.

Conclusive remarks

Ultimately, if you are contemplating undertaking a development on land you do not own, there will inherently be risk of a landowner insolvency. As such, financial and legal due diligence on the landowner ought be undertaken. In conjunction, seeking mortgagee consent to any leasehold interests as well as perfecting any security interests in respect of any relevant assets should not be overlooked.

1 Tough start to 2025 ahead for Australian businesses; sector outlook worst for hospitality | CreditorWatch
2 Sims v TXU Electricity Ltd [2005] NSWCA 12 at [17-18].
3 Corporations Act 2001 (Cth), s 568D(2). [1] New Zealand Government Property Corporation v HM & S Ltd [1982] QB 1145.