Many landlords and occupiers have been installing solar photovoltaic panels to improve the energy efficiency of their commercial buildings. We expect this trend to expand rapidly due to the positive impact that solar panels can have on building energy efficiency ratings and also to satisfy increasingly demanding ESG corporate requirements and in time regulatory requirements.

Whether it involves retrofitting solar panels to an existing building or installing them in a new build, there are a number of factors to take into consideration:

1. Assessing suitability: Solar panels are one possible way of improving energy efficiency but they will not be suitable on every occasion. Landlords and tenants must consider whether: 

  • The projected generation capacity will be sufficient to meet the occupier's requirements;
  • The expected cost savings will be sufficient to offset the installation costs;
  • The installation will improve the building's EPC rating;
  • A structural survey will be required to check that the structural loading capacity of the building is suitable for the installation of solar panels; and
  • All the necessary rights to access the premises and carry out any inspections and works are in place.

2. Necessary Consents: All necessary local authority and grid connection consents must be obtained prior to commencing a solar project and the timescales for obtaining these should be considered within the deal timescales. The parties also need to agree who will apply for such consents.

3. Control of the installation, maintenance and removal: Will it be the landlord or the tenant who arranges for the installation to be carried out? Any lease between the landlord and the tenant for any existing property may have to be amended to deal with the works, maintenance, removal and renewal of the plant and equipment.

4. Ownership of the solar plant and equipment: Will the landlord retain ownership of the solar plant and equipment or will ownership be passed to the tenant? This is particularly important in a "retrofit" scenario where there is already an existing "FRI" lease in place making the tenant responsible for the roof to which the solar panels are to be affixed. By retaining ownership of the solar plant, the landlord can control its maintenance and by extension compliance with the terms of any product guarantees. This may be important to a landlord who has incurred substantial installation costs. In addition, the energy generated from the panels may produce an additional income stream. However, careful consideration needs to be given to the practicalities of the landlord undertaking such maintenance and the impact which this will have on the tenant's repairing and other obligations under the Lease.

5. Power Purchase/Sell Agreements: A landlord who retains ownership of the panels must decide how they will charge the tenant for the energy generated on site and consumed by the tenant. This can be done by way of a power purchase agreement (which may be incorporated into the lease) or by charging an increased rent which is inclusive of this cost. The landlord may also be able to sell any surplus energy to the grid.

There are a variety of structuring options for landlords and occupiers to consider depending on various factors including the type of property, the terms of any existing lease and the future plans of both parties. Please get in touch with your usual Brodies contact if you would like more information or advice.

Contributor

Clare Dewar

Senior Associate