In 2011, David Lesser was an executive with experience running REITs and a passion for renewable energy looking for his next opportunity. He realized that solar and wind farms produce reliable, long term cash flows, but at the time, there were no publicly traded vehicles for income oriented investors to benefit from these cash flows.  He saw the opportunity for a REIT to buy the land underlying wind and solar development, lease it back to the wind and solar operators, and deliver the payments to investors in the form of a sustainable yield.  Lesser and his allies saw PWV as an appropriate vehicle for this, and began buying its stock.  In 2011, he became Chairman and CEO, and formed the holding company Power REIT to own PWV and future renewable energy real estate assets as a publicly listed holding company.

The immense appetite that investors have shown for the yeildcos launched by renewable energy developers in 2013 and 2014 has amply demonstrated Lesser’s business plan to be a good one, but PWV’s railroad asset has side tracked its execution.  The company has only done two smallish solar deals because of the distraction.

Side Tracked on West End Branch

The side track started with a minor dispute over legal fees.  The lease is somewhat unusual, in that (according to the court filings of the lessees) it was designed to give the lessees as much control of the property as possible without taking legal ownership under US tax laws.  Since PWV retained ownership of the property, but ceased to be an operating company when the lease was signed, the lease provides for the lessees to pay any of PWV’s expenses which are «necessary or desirable» to protect its interest in the property, unless those expenses were «solely» for the benefit of its shareholders.

When Lesser received notification in 2011 that WLE intended to sell a part of the property known as «West End Branch» he consulted with his attorneys to understand PWV’s rights and obligations under the lease. While WLE does have the right under the lease to sell parts of the property it does not need as long as it follows the appropriate procedures, it refused to pay the resulting attorney’s fees.  Since the lease seemed to be clear to Lesser and his attorneys in this regard, after several attempts to get WLE to pay, this refusal became an incurable default under the lease.   Since the default was incurable, PWV’s only recourse was to foreclose.

WLE and NSC wanted to maintain what had become a very attractive agreement in their favor over the fifty years since it had initially been signed, and so they filed a civil action against PWV and Power REIT to prevent the foreclosure in early 2012.  Over the last two years, increasing amounts of PW management and resources have been required in the litigation against two larger and much better funded companies, but Lesser feels firmly that the time and expense will eventually prove to be very attractive investments.  Not only does a reasonable interpretation of the lease provide for WLE and NSC to pay all the expenses (which seem to be a clear example of expenses which are «necessary or desirable» to maintain PWV’s interest in its property), but numerous other violations of the letter of lease have come to light since the initial dispute about West End Branch legal fees.  

If PW is able to foreclose, a bookkeeping «settlement account» under the lease worth at least $16 million and as much as $68 million will be due, and it (or part of it) may be due even if the court finds the lease not in default.  

The State of Litigation

The current litigation is complex, with multiple accusations in both directions.  Power REIT has posted an archive of most of the court documents on its website.  The most recently filed documents are each party’s opposition to the other’s Motion for Summary Judgement, and these documents do an excellent job of summarizing each party’s position in a very complex case.

Perhaps the most remarkable feature is just how far apart the two sides are.  Power REIT spells out several counts on which WLE and NSC have violated the wording of the lease.  WLE and NSC deny them all, and say that Lesser is a money-grabbing capitalist whose intention has all along been to manufacture defaults under the lease to extract money out of them.  Their main argument is that the parties had been doing everything their way all along, and so that should not change, even if the lease says otherwise.  They also claim, somewhat hypocritically considering the above argument, that Lesser is trying to change the terms of the lease, and that should constitute a default.

I’m not a legal expert, and I have no way of knowing which side is in the right when it comes to the legal issues.  How much does the intent behind the lease count compared to the words of the lease itself?  How important are the previous actions of the parties?