As part of the drive for sustainability, landlords are looking at new ways to make their properties "greener". As technology develops this will manifest itself in different ways, some of which may impact on commercial tenants. One thing currently coming to the fore is landlords seeking to future proof their leases to allow them to put solar panels on their properties. However, there can be a number of potential impacts on a tenant which may not be immediately obvious and a tenant needs to be aware of.
Who benefits?
Where is the electricity that is generated going? Is it to be used in the unit itself, in the common parts of a development for the benefit of its tenants, or is it being sold to the grid (or perhaps a combination of these)? Will the tenant actually save money on bills?
Is the landlord leasing the airspace to an operator to install panels or will they be operating them themselves?
The answers to these questions factor significantly into the thought process on a number of the relevant issues – as if there is no direct benefit a tenant will not want to take on any risk of cost etc.
The roof
On properties such as retail parks or stand alone units the roof of the property is often demised to the tenant. Therefore, with an FRI lease the tenant will be responsible for keeping the roof in good repair. Adding solar panels may make this more difficult or costly, for example, because the roof will be covered in panels, access to the roof will be more difficult and the landlord may also require specified contractors to be used for any roof maintenance to avoid damage to any panels installed or voiding any guarantee (which may also be more expensive). There is also the possibility of the panels damaging the roof in bad weather or the fact there are now holes in the roof for the fixings leading to problems that would otherwise not have occurred and which the tenant has to pay to remedy.
Integrity of the tenant space / liability
Landlords may seek not only to install panels on the roof but also equipment (such as inverters) within the tenant's demise. This may include cabling and/or connecting to the existing electricity wiring in the unit which, like the roof, may be demised to (and therefore the responsibility of) the tenant.
What happens if someone gets hurt, or if there's an issue or a fault? What happens if the circuits in the property get overloaded and cause damage or even a fire? A tenant will want to make sure that they are protected, and the landlord retains all liability for the installation and any damage or injury caused. Tenants will also have to consider if their insurance arrangements need to be updated.
There is also the question of what happens if the installation of the panels directly or indirectly causes repair issues that would otherwise not have occurred. These need to be excluded from the tenant's liability under the lease, but proving something would not have occurred but for the panel installation may be difficult even if there is an exclusion.
Service charge
Tenants in properties where the roof is common (such as a shopping centre) are less likely to be able to object to solar panels as their landlord will have control and responsibility for the common parts of the building. The tenant's main concern in this scenario is service charge – making sure the capital cost of the panel installation is not paid by the tenants, that the costs of maintenance and renewal etc are either excluded (if the landlord is selling the electricity or bringing in an operator) or are going to be reasonable (and less than the saving on electricity) if the electricity is for the benefit of the development.
All these issues need to be carefully considered when negotiating a new lease, or even extending an existing lease where a landlord seeks to add "green" clauses into the lease, including being careful of any generic reserved rights which a landlord may seek to include with a view to allowing them to install solar panels in the future, as these generic provisions, may leave the position regarding either parties rights, obligations and remedies against the other uncertain. Early advice from your solicitor is therefore essential to avoid some nasty surprises.
If you have any commercial property queries or would like to discuss this article in more detail, please contact one of the authors below.
