Renting a Solar Roof Can Offer a Win-Win Solution for Commercial Building Owners, Energy Developers and the Environment | Miles and Stockbridge PC
The increase in demand for clean and renewable energy drives the need for available rooftop space to utilize solar power systems. As development costs have fallen significantly and the regulatory climate has become even more favorable over the past few years, we have seen a significant increase in the number of commercial building owners and energy developers looking for ways to access and use solar energy resources.
This can be accomplished in different ways. The more traditional model is for property owners to own a rooftop solar photovoltaic (“PV”) system, pay for the installation, and use the energy generated to offset their utility costs. However, this method requires a significant initial investment.
Thus, the rooftop rental model has become increasingly popular. Under this model, a third-party solar energy developer will lease the roof to the commercial building owner, install the photovoltaic systems, pay rent for the use of the roof, and sell the locally generated energy to a buyer, usually a utility. business. Along with the benefits of being better stewards of the environment and greater corporate social responsibility, there is little to no upfront cost to the owner, and renting creates additional revenue streams for more than 20 years using underutilized space on the roof. Many developers can also provide commercial buildings with discounted electricity through a community program or direct power purchase agreement or PPA, helping to reduce energy costs.
If both parties weigh the pros and cons and commit to a long-term partnership, rooftop solar rental can potentially be a win-win solution for commercial building owners, energy developers, and industry. environment. But before signing up, there are many factors to consider with this type of lease. Below is a list of just a few of these considerations for commercial property owners and developers in addition to traditional lease provisions. And not just rooftop leases, many of these factors also apply to leasing underutilized open space, large parking lots, and carports.
- Is the roof suitable for a PV system? Some considerations include the age of the roof, its size, if the roof is cluttered with HVAC or other equipment, and if the roof is shaded.
- How long is the roof inspection and feasibility period?
- How do I avoid voiding the building’s roof warranty?
Duration of the lease and rent
- What is the initial term of the lease? Terms can be 15 to 25 years.
- After the initial term, what are the lease renewal options?
- What does paying rent look like? Is it fixed? Is it calculated based on: (i) the size of the roof used; (ii) the power produced; (iii) a percentage of the revenue received by the tenant; or (iv) another base? Is there an escalator from year to year?
Construction, operation and maintenance of the PV system
- What licenses are required? License examples include construction, floor and scale.
- Must the building owner approve the plans and specifications and sign subsequent modifications, repairs and replacements?
- How and when does the developer access the roof to install, clean, maintain, repair and replace the PV system?
- Is the security of buildings and roofs an issue?
- How can the parties use the roof so as not to interfere with the operation of the PV system?
- What are the building owner’s obligations regarding interference with the availability of sunlight?
- What happens if the roof needs to be repaired and/or replaced?
- What happens if the building needs repairs?
- Who owns the PV system during the lease?
- What types of liability insurance must be maintained? Who pays for insurance premium increases?
- Who pays for property tax increases?
- How do you manage hazardous materials and environmental compliance?
- Who owns environmental attributes, including carbon trading credits, revolving credits, tax credits, accelerated depreciation, etc. ?
Termination of the lease
- Can the building owner buy the PV system after the end of the lease?
- How do you approach decommissioning and removal of the rooftop PV system and decommissioning insurances?
Not all roof leases are the same. Instead, these leases can and should be tailored to meet and adapt to the particular situation. Addressing these issues specifically in the lease and working with an experienced attorney will allow each party to best position the project for success.
If you are a commercial building owner, landowner or energy developer coming to market, you need to ensure that your interests are properly protected and the project is set up for success.
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