A number of landlords, owners and tenants are installing rooftop
solar panels on commercial properties. The idea demonstrates a high
regard for the use of sustainable energies and offers some tax
incentive/carbon credit potentials.
These are all advantages I encourage, but as a commercial real
estate/leasing lawyer, I cannot help but turn my mind to the
potential legal/leasing implications of such installations,
particularly when the owner of the building has tenants occupying
space in the building, or is thinking of selling the building. This
is not to say that I am against such installations. Far from it!
But some reflection is required before entering into leases for
solar panels. Here I'll discuss briefly the preliminary
considerations landlords and tenants might discuss before having
such panels installed.
Who controls the roof?
In ground leases, the entire property and building are leased to
the tenant and thus it is the tenant and not the landlord who has
control of the roof. In a single tenant building,
the landlord may offload the responsibility for the roof to the
tenant, or alternatively, the lease may allocate rooftop
obligations between the parties. For example, the tenant might have
day-to-day repair and maintenance obligations for the roof, while
the landlord's obligations are limited to its capital costs. In
some cases, the landlord retains the roof obligations, but offloads
some costs to the tenant, or may allocate costs depending on
whether the maintenance and repairs are structural or
The first step, then, in any discussion of leasing the roof for
solar panels is to look at the lease or leases of the building to
determine: 1) who controls the roof; 2) how the costs are allocated
to the landlord and tenant(s) with respect to the roof; and 3)
whether or not any rents earned by the landlord or the tenant in
respect of the solar panels need to be attributed against other
operating costs or are for the landlord's or tenant's
account alone. Another consideration is to determine who will be
entitled to the benefit of the carbon credits that might be
associated with the panels.
It is also critical to examine any reciprocal operating
agreements or agreements with "shadow anchors", which
might limit rooftop use or require certain equipment to be screened
from view (which could hamper the operation of the panels), or
which might prescribe maximum building heights (which are perhaps
affected by rooftop installations).
Solar Panel Lease Considerations
If the panels are not to be purchased, but rather the roof is to
be leased to the solar company, the next step is to look at the
solar panel lease itself. A landlord or owner should consider: 1)
where the panels will be located; 2) their weight and impact on the
roof and its maintenance; 3) the allocation of responsibility for
maintaining, repairing, upgrading (as the technology evolves),
replacing, and insuring the panels, and relocation rights and
An owner/landlord needs to think about maintenance and safety
issues, and whether or not the installation will affect any
existing rooftop warranties or guarantees, or any signage,
dedicated HVAC, telecommunication or satellite rights granted to
others. Will the installation affect other utilities in premises in
the building? Are any hazardous substances involved? Parties will
want to consider whether or not the panel lease, which is usually
for a long period of time, can be terminated, or must be assumed by
Don't Forget the Taxman!
Finally, consider property tax implications. The panels and the
foundations on which they rest might be tax exempt in proportion to
the power they produce for sale to the general public, while not
exempt if the electricity is solely for property use, or if the
owner is generating income from leasing the rooftop, as opposed to
generating income from sale of electricity.
While not intended to hinder or postpone any consideration of
whether or not to take advantage of the benefits of such
technologies, the foregoing considerations are preliminary to your
discussion with the solar panel company before having panels
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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It is not clear how far our courts will be willing to accept an argument that a breach of a covenant to repair by a landlord can amount to a fundamental breach entitling a commercial tenant to treat the lease as terminated.