Glenfiddich Wind Limited v Dorenell Windfarm Limited

Published bySophie Baird

8th January 2026

The development of Wind Farms has been one of the major growth areas in Scotland over the past twenty-five years. It can be a profitable venture for both developers and landowners alike.

In the case of landowners, it can be life changing as land that was once of extremely limited value instead generates very substantial returns. Either from, subsidising government incentives, supporting communities with community benefit funds, or providing a more sustainable future for the next generation, the impacts on both the economy and government targets speak for themselves.

Wind Farm projects require expertly negotiated Option and Lease agreements, and financial provisions bear the greatest scrutiny when striking a fair deal for both the developer and the landowners of these long-term agreements. It is important to ensure that the legal documentation accurately reflect the parties’ respective understanding of the financial terms. Translating financial calculations into legal contracts can be particularly challenging.

But what happens when one party believes that the payment provisions mean one thing yet that the other party takes a different view. If the legal contracts are opaque on the matter, or even silent, almost inevitably it will give rise to dispute.

These questions were raised in a commercial action which was raised by a landowner, Glenfiddich Wind Ltd (the ‘Pursuer’), who had entered into an agreement in 2015 to lease land at Scaut Hill, Glenfiddich, to Dorenell Windfarm Limited (the ‘Defender’) for the development and operation of a windfarm. The lease provided for:

• A minimum annual rent of £6 million, index-linked.
• An additional rent calculated on the tenant’s annual gross income from operating the wind farm.

The commercial intention in these arrangements is that every income stream which the developer benefits from is included in the calculation of “annual gross income” with the landowner in turn receiving a percentage share of such income. The dispute related to what was included in the phrase “annual gross income” and whether, where something equivalent to “Constraint Benefits” were paid to a third party under a separate contract, these should nonetheless be considered as a separate head of income in the calculation.

Constraint Benefits are common in the wind energy sector where the National Grid may be unable to accommodate excess electricity. These payments compensate operators when output is restricted or shutdown during periods of low demand or grid congestion.

The lease defined a “Constraint Benefit” as:

A relief, payment, reduced charge or avoided charge received by the Tenant from the Transmission System Operator in relation to a cessation, reduction or constraint in the export of electricity from the relevant facility to the Transmission System.

In this case, Constraint Benefits were not paid directly to the Defender. This was because the Defender had entered into a Power Purchase Agreement (‘PPA’) with a related company, EDF Energy Limited (‘EDFE’). EDFE would buy the electricity generated according to agreed formulae (thereby giving the Defender certainty over the price received for the power generated) but in turn any Constraint Benefits were instead paid to EDFE.

The Defender argued that the Constraint Benefit paid to EDFE did not fall within the definition of “annual gross income” and so should not be considered in calculating the rent. The Pursuer argued that in fact, having already established a rent payment arrangement with the Defender, this sum in effect acted as a ‘Constraint Benefit’ for the Defender under the lease and should therefore be factored into the Defender’s gross income for the rent calculation.

Senior counsel for the Pursuer submitted that, the Defender not including these benefits when calculating the rent payable meant that the Defender had effectively underpaid rent over a 3-year period. The Pursuer claimed that it had not realised the Defender would be paid in terms of the PPA when not generating electricity under the lease and was consequently asking the court to fix its own unilateral error by bringing such revenue within the terms of the lease.

Decision

Lord Sandison said that the lease had to be viewed and approached in the context of achieving the objectives that a reasonable person in the parties' position would expect. It is important that the contract take a purposive approach and address the failings of the initial drafting as above all this needs to make commercial sense. The substance of the parties agreement should prevail over niceties of wording.

He continued that, “gross income was intended to comprehend not only receipts from the actual generation of electricity but to certain kinds of support or advantage that might transpire in relation to a cessation, reduction or constraint in the export of electricity from the windfarm to the transmission system”. The Transmission System Operator’s constraint decision directly benefited the Defender through their voluntary arrangement with EDFE.

Lord Sandison concluded that this Constraint Benefit to the Defender was a benefit which should be factored in when calculating the annual gross income of the Defender from the operation of their windfarm and that resultingly, the rent payable under the lease should be adjusted to match.

Using the comparison of Aberdeen City Council v Stewart Milne Group (2011), Lord Clarke contended that the parties could not have meaningfully intended for the benefit to be left out of the calculation of rent under the lease.

It is clear to see from this case, that the court took a view from the purposive approach, meaning that it should have regard to the fundamental objectives which a reasonable person in the parties’ position would have in mind ie. that it would make commercial sense.

This is a case which outlines the benefits and the need for prudent legal advice for landowner’s when negotiating the terms of a lease. Ultimately, both the developer and landowner can benefit from these provisions however it is important to consider these benefits within the greater context of what is allowed for within a lease. Having clear and consistent provisions in the lease which addressed these issues head on could have avoided the need for lengthy and costly litigation.

At Wright, Johnston & Mackenzie LLP we have expert lawyers who negotiate option and lease agreements day in and day out. We advise both landowners and developers. If you want to explore how we can help you to maximise the commercial benefit from your renewable energy project please contact either Andy McFarlane (amm@wjm.co.uk), Esme Macfarlane (erem@wjm.co.uk) or Hetty Talbot (henrietta.talbot@dcslegal.com) who will be happy to speak with you.