A Guide for Installing Solar Panels - for developers, building owners and tenants

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21 September, 2022

Rebecca Davidson
Trainee Solicitor

The current Energy Crisis has meant that energy price caps are expected to rise to 82% by October. The increased pressures of living costs in the United Kingdom has led to a push for solar panel adoption. A solar panel array is a cheaper and efficient form of energy production, with sustainable benefits for the environment and energy bills. For developers and building owners, it can be an attractive asset to add to your property. For tenants, the installation of solar panels can save you money through lower energy bills and a reliable source of energy production. When exploring solar options, you should be mindful to the obligations and agreements that must be in place to ensure that you are financially protected. In the following article, there will be consideration as to the regulatory requirements, the obligations, the benefits from the angle of the developer, the building owner, and the tenant.

Regulatory Options- Lease, Reservation of Rights, or a License?

  1. Grant a Lease. When a solar developer wants to install a solar array, they are likely to require a lease for the rooftop space or a lease for the roof surface itself. This is easier to arrange when the property is multi-let as the building owner will usually retain the lease. If a lease is granted, the solar developer gains a property interest which is binding on the landlord's successors in title and helps with funding purposes for the solar panels. As solar panels have an operational life of around 20 years, a 20 year or more lease to a solar developer is most appropriate to cover repayment and lifespan of the solar array.
  2. Reservation of Rights. When a landlord retains the roof, they can install a solar array on the property, provided the rights of the existing occupational tenants are considered. Where an entire building is to be leased to a single occupier, then the landlord must reserve the right to access the roof to install, repair, maintain, renew the solar panels. For existing leases, there must be a variation of the lease to incorporate the necessary reservations.
  3. Licenses. Licenses are unsuitable for solar installation as it is a personal arrangement. Licenses are not binding on successors in title and due to the long-life span and expensive installation costs of solar panels, the arrangement must cover future successors.
  4. Termination of a Lease. If a landlord wants to terminate the lease early, then they can expect to make a compensation payment. This could be a large sum to repay the costs of installation, cover the lost revenue and cover the removal costs - these aspects are all up for negotiation. A solar developer will likely look for a minimum term where a landlord cannot terminate to ensure that they have more certainty that they will be able to recover substantial costs.

What else should be considered?

Prior to installation of the solar panels, there must be consideration as to the obligations to repair, renew and maintain the solar panels. A lease should clearly state the extent to which panels can be moved, relocated, and removed for the avoidance of doubt. It would be advised that the following is also considered by building owners, landlords and tenants:

  1. When a building owner grants a lease to a solar developer, they should look for a set of obligations from the developer relating to standard of works. The lease should set out an obligation on the solar developer to demonstrate good workmanship, use good materials and comply with legal requirements.
  2. When a landlord reserves the right to install a solar array, the tenant should look out for similar obligations on the landlord to ensure that the works and costs related to the solar panels are covered by the landlord. However, a tenant may be expected to pay extra service charge costs for the solar panels in return for reduced energy costs.
  3. Warranties should also be available in respect to lifespan and installation of the panel, depending on the contractor and solar developer.
  4. Building owners should ensure that they have a suitable building insurance policy that covers the solar panels and that there is not an increase in premiums. There is likely to be a change in the insurance cover for solar panels as they produce an increased risk of theft, fire, and storm damage from high winds. A building owner can make enquiries with the solar developer who will usually insure their own equipment. Further, some solar developers will carry out appropriate third party and public liability insurance. However, who is to pay the increase of insurance is an unanswered question.
  5. Tenants may want to look to exclude the costs of insuring solar panels, or any increase in the building insurance premium from their own contributions.

Purchase Power Agreement

A power purchase agreement governs the sale and purchase of power generated by an installation. A power purchase agreement sets out the price that will be paid per kilowatt hour of electricity for a fixed period, with an increase over time in line with the consumer or retail prices index. A power purchase agreement can sit alongside a lease when a landlord buys the power generated by rooftop panels as well as granting the lease to the solar panel developer. Another example is where a landlord reserves the right to install the panels and sells the power to the tenant. When a power purchase agreement sits alongside a lease, both documents must be consistent through the term length and if one is terminated this should automatically terminate the other. Finally, if the building is sold or the lease is transferred, then the power purchase agreement should automatically be transferred to the successors in title.

In the current Energy Crisis, a solar array can fulfil environmental needs whilst producing a sustainable source of electricity and reliable and affordable energy bills. Over the coming years, solar power will likely be a progressive and competitive option, explored by developers, landlords and tenants. With the increase in desire for solar options, it is important to be mindful of the obligations and agreements that you may require.

For more information contact Rebecca Davidson in our Housing & Regeneration department via email or phone on 01772220143. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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