Legal due diligence of a RES project: the scope of the review

Legal due diligence of a RES project is a systematic review of project documents and legal status, conducted before the transaction. It aims to answer two questions: whether the project aligns with what the listing states, and which risks will affect the price, structure, or closing conditions.

This guide describes the areas of investigation and regulations that most often determine its outcome. It does not replace the analysis of a specific project.

Land and title deed

The investigation begins with the basis of using parcels. The compilation includes the current extract from the land and mortgage register for each parcel, extracts from the land register, lease agreements with annexes, and disclosed encumbrances: mortgages, easements, and rights of first refusal.

The sale of land does not in itself terminate the lease. Article 678 § 1 of the Civil Code, applied to leases by analogy under Article 694 of the same code, provides:

In the event of the sale of leased property during the lease term, the buyer steps into the relationship of the lease in place of the seller; however, they may terminate the lease with due regard to statutory notice periods. [Article 678 § 1 of the Civil Code]

The buyer’s right to terminate is often excluded. Article 678 § 2 of the Civil Code deprives the buyer of this right, “if the lease agreement was concluded for a fixed term in writing with a certain date, and the property was handed over to the lessee”. For a RES project, this means that the form of the agreement, the certain date, and the handover of the land carry more weight than the parties’ assurances.

A separate layer is the entry in the land and mortgage register. Article 16(2)(1) of the Act of 6 July 1982 on land and mortgage registers and mortgages lists the right of lease or tenancy among rights that may be recorded in the register, and Article 17 of that Act describes the effect of recording:

By disclosing in the land and mortgage register, a personal right or claim obtains effectiveness against rights acquired by a legal act after its disclosure […] [Article 17 of the Act on Land and Mortgage Registers and Mortgage]

The lease entry is effective against rights acquired after its registration. Check whether it covers all project parcels and whether its content matches the agreement. The assignment clause requires particular attention: the requirement for the landowner’s consent for each transfer of rights can halt the transaction, so confirm it before agreeing the document signing schedule.

Planning

The project is based on a local zoning plan or a zoning decision, issued under the Act of 27 March 2003 on spatial planning and development. The absence of a local zoning plan does not invalidate the project, but it directs it towards a zoning decision.

Compare the scope of the planning document with the layout of the parcels and with the parameters from the technical documentation. Also check whether the municipality has not subsequently adopted a local zoning plan changing the land use.

Environment

The decision on environmental conditions and the environmental impact report are prepared on the basis of the Act of 3 October 2008 on access to information on the environment and its protection, public participation in environmental protection and environmental impact assessments. For wind projects, ornithological and chiropterological expert opinions are included in the documentation.

Determine whether the decision is final, whether it has not been appealed, whether it covers the current layout and parameters of the installation, and what conditions it imposes on further stages.

Grid connection

The connection layer includes grid connection conditions, a connection agreement, a schedule, and correspondence with the operator. Compare grid connection capacity with installed capacity, check deadlines from the schedule, payment status, and whether any dispute with the operator is ongoing.

Public data on generation units provide context, but do not confirm the ability to connect a specific project. You can find such a compilation, along with the data status date, in the register of generation units.

Licences and auctions

In this area, the study covers the status of the licence or the URE President’s licence promise, entries in registers maintained by the regulator, participation in auctions, and obligations arising from winning an auction, including the schedule and the consequences of non-compliance. This is described in more detail in the article URE licences at a glance.

The transaction parties are worth checking on the public side too. The company card in the URE register collects licences, entries in the register of energy producers in small installations, participation in the capacity market, KRS data, and VAT status along with the data status date.

Financing and approvals

For projects financed by debt, the study covers loan agreements, security, covenants, and change of control clauses. It is necessary to determine whether a change of owner triggers a requirement for bank consent or early maturity, and whether refinancing after closing the transaction is feasible.

The same group includes corporate approvals: the articles of association or the company statute may make the transfer of shares subject to a resolution of the shareholders.

Property tax on wind farms

The tax audit covers VAT settlement on expenditures, property tax, CIT settlements and allowances. For wind farms, the definition of a structure is decisive. Article 1a(1)(2)(b) of the Act of 12 January 1991 on local taxes and charges, in the version effective from 1 January 2025, classifies as structures a wind farm, a nuclear power plant, a photovoltaic power plant, a biogas plant, an agricultural biogas plant, an energy storage facility, a boiler, an industrial furnace, a cable railway, a ski lift and a ski jump, in the part that is not a building, and this applies exclusively to their structural parts.

What belongs to the technical part and what to the construction part is specified by the Act of 20 May 2016 on investments in the field of wind power plants. Article 2(1) of this Act defines a wind turbine as a renewable energy installation consisting of a construction part constituting a building within the meaning of construction law and technical equipment, including technical components. Article 2(2) lists the technical elements: rotor with blade assembly, drive train, generator, control systems, and nacelle assembly with mounting and rotation mechanism.

Settlements for previous years may be based on a different basis. The Supreme Administrative Court assessed the legal status in force from 1 January to 31 December 2017 and assumed that the tax then also included technical elements:

the subject of taxation subject to this tax was limited to the foundation and tower as well as technical elements of wind turbines, listed in Article 2(2) of the u.i.e.w. [II FSK 811/18] (12.02.2020)

The judgment concerns a closed period and does not describe the current state. When conducting due diligence on a project company, determine for which years the declarations covered only the construction part, for which they covered the entire installation, whether the municipality conducted proceedings, and whether there are arrears or overpayments. The tax aspects of the purchase are discussed in more detail in HWW materials on tax consequences of purchasing an installation.

Variants of the scope of the investigation

The scope of the due diligence is determined by the parties before opening the data room. Three variants are repeated:

• full due diligence, covering all areas, completed with a report listing issues and proposed clauses for the transaction agreement,
• seller-side due diligence, carried out before the draft is published, to organise documents and identify gaps before discussions with the investor,
• limited study, also known as a red flag assessment, focuses on a few key issues that determine whether the project is suitable for further analysis.

The duration of the due diligence depends on the completeness of the data room, the number of projects in the portfolio, and the speed of responses to questions. The sequence of stages is often the same: access to the data room, the first list of questions, responses and follow-up questions, analysis of contentious issues, the report, and negotiation of documents.

Most common problems

• inconsistency between the land and mortgage register and the agreements, undisclosed lease or unremoved encumbrance,
• environmental decision appealed or inconsistent with the project in the current layout of the installation,
• discrepancy between the planning document and the project, for example a change in land use after the zoning decision has been issued,
• assignment clause in the lease requiring the landowner’s consent for any changes on the lessee’s side,
• disputed environmental appraisals, particularly for wind projects,
• lack of corporate consent for the transfer of shares, required by the company’s articles of association,
• property tax arrears or declarations based on outdated grounds.

HWW materials for further reading

HWW publishes materials on tax due diligence before a transaction, on obligations when buying a company with a licence, and on choosing between an asset deal and a share deal. Before applying, check the current legal status.

Checklist

• collect current extracts from the land and mortgage registers and extracts from the land register for all parcels,
• lease agreement package with annexes, check assignment clauses and compare their content with entries in the land registers,
• set the planning basis and check its compatibility with the installation layout,
• check the finality of the environmental decision and its conditions,
• compare grid connection capacity with installed capacity and review the schedule with the operator,
• set the status of the licence, register entries and auction obligations,
• review covenants, safeguards and change of control clauses,
• verify property tax declarations for each year,
• maintain one register of issues with the source document and the responsible person,
• use the interactive due diligence checklist and arrange the documents according to the RES project data room guide.