If your business operates from a leased building, you might assume solar isn’t an option. After all, you don’t own the building and therefore the roof, so how could you install panels on it? The good news is that being a tenant doesn’t automatically prevent you from exploring commercial solar. In many cases, businesses can install solar on leased premises, but there are some important considerations to work through first.
From getting your landlord on board to checking your lease, understanding who owns the system and choosing the right way to fund it, there is more to consider than simply whether the roof has enough space. We believe the best place to start is with understanding the opportunity. If you’re a tenant considering solar, here’s what you need to know.
Can tenants install solar?
Yes, tenants can potentially install solar on a leased commercial property. However, the answer depends on the terms of your lease and your agreement with the building owner. Solar panels are typically installed on the roof or other parts of the property, so you will need to establish that you have the right to carry out the proposed works. Your lease may contain clauses relating to alterations, improvements, access, repairs or reinstatement that are relevant to a solar installation.
It’s important not to assume that because you occupy the building, you automatically have the right to make changes to it. The first step should be to review your lease and speak with your landlord or property manager. Depending on the agreement, you will need formal written consent before any work can begin. Government guidance on commercial property makes clear that responsibilities between landlords and tenants are determined by the lease, including matters such as repairs and maintenance.
Why does the landlord need to be involved?
A commercial solar installation involves the roof structure, electrical infrastructure, access arrangements and ongoing maintenance. These questions don’t necessarily mean solar isn’t possible; they simply need to be addressed before the project moves forward. In many cases, a landlord will see the benefits of solar as an opportunity to improve the building, improve the building’s EPC rating and its long-term energy performance.
From the landlord’s perspective, there are understandable questions to consider:
- Will the roof support the proposed system?
- Who is responsible for the panels and associated equipment?
- Who has access to the roof for maintenance?
- What happens if the roof needs repairs?
- Who insures the system?
- What happens to the installation when the lease ends?
- Will the building need to be reinstated?
- What happens if the property is sold?
Check your lease before you start
Your lease is one of the most important documents to review before considering tenants installing solar. Look particularly closely at clauses covering:
Alterations
Does your lease allow you to make alterations to the property? If so, does it require the landlord’s consent? A solar PV system will involve changes to the external building and electrical infrastructure, so this is something that should be established early.
Repairs and maintenance
Who is responsible for maintaining the roof? This can become particularly important if the roof needs work during the lifetime of the solar system. You need to understand who is responsible for coordinating and paying for any necessary repairs and how access to the system will be managed.
Access
Your solar system will need to be inspected and maintained. Your agreement should establish who can access the roof, when they can access it and how that access will be arranged.
Reinstatement
Some commercial leases require tenants to return premises to their original condition at the end of the lease. If that applies to your property, you need to understand what it means for the solar installation before committing to the project.
Lease length
The remaining term of your lease is another important consideration. If you have several years remaining, you may have plenty of time to benefit from the system. If your lease is due to expire soon, the financial case may look very different. There isn’t a universal rule here. The right approach depends on the individual property, lease and project.
What happens if the landlord says yes?
Once you’ve established that solar is permitted, have the agreement properly documented. The exact arrangements will depend on the project, but you may need to agree:
- Permission to install the system
- Ownership of the equipment
- Access rights
- Maintenance responsibilities
- Insurance
- Roof repairs
- Responsibility for damage
- What happens if the lease ends
- Whether the system needs to be removed
- What happens if the property is sold
This is an area where your legal and property advisers should be involved. A solar installer can help provide the technical information needed for those discussions, but your lease and legal agreements should be reviewed by the appropriate professionals. The important thing is to have these conversations early rather than discovering a problem after the system has been designed.
Who owns the solar panels?
This depends on how the project is funded and structured. If the tenant purchases the system outright, the tenant will own the solar installation, subject to the agreements made with the landlord. But buying the system outright isn’t the only option.
A Power Purchase Agreement, or PPA, can provide another route for businesses that want to benefit from solar without paying for the installation themselves. Under a PPA, the solar system is funded, installed and maintained by a third party, while the business purchases the electricity generated by the system at an agreed rate. We fund, design, install and maintain the system, while the business purchases the electricity it generates, typically 40% lower than grid costs.
For tenants, this can make the conversation around solar particularly interesting because the business doesn’t necessarily need to find a large amount of capital to get a project moving. However, the length and terms of the PPA need to work alongside the tenant’s lease arrangements. This is one of the reasons it’s important to consider the property agreement and energy project together with your landlord.
What happens when the lease ends?
This is one of the biggest questions for tenants installing solar and the answer should be agreed before the system is installed. Depending on the arrangements, there could be several possibilities. The system may remain with the property, ownership could transfer, the tenant could continue under an agreed arrangement, or the system may need to be removed. The specific answer will depend on the lease, ownership structure, funding model and agreements between the parties.
This is also why the length of the lease matters. A business with a long-term lease will have a very different opportunity from a tenant with only a couple of years remaining. Consider the property’s future as well as the immediate project, and ensure alignment with your landlord.
Does being a tenant affect the financials for solar?
It can, but it doesn’t necessarily make solar less attractive.
The financial considerations will naturally depend on factors such as:
- How much electricity your business uses
- When you use electricity
- The size and orientation of the available roof
- Expected solar generation
- Your current energy costs
- The amount of electricity you can use on-site
- The remaining lease term
- The funding model
- Any costs associated with the landlord agreement
- Future plans for the property
This is why we don’t think there is value in giving every business the same answer. A solar system should be designed around the way your business actually operates. For a tenant, that also means considering how long you expect to remain in the building and what happens if your circumstances change.
What if the landlord is interested too?
A landlord may already be considering improvements to the building while the tenant is interested in reducing energy costs. Solar can benefit both parties, although the commercial arrangement needs to be carefully structured. For example, the tenant may be the main beneficiary of the electricity generated because they occupy the building, while the landlord retains ownership of the property and potentially the solar asset.
There are already examples of landlord and tenant arrangements being structured specifically around solar, including agreements covering the solar equipment and the electricity purchased by the tenant. The important thing is that both parties understand what they’re agreeing to.
What about planning and grid connection?
Getting landlord permission is only one part of the process. Depending on the project, there may also be planning, building, electrical and grid connection considerations. Planning requirements vary according to the specific installation and property, so these should be assessed as part of the project rather than assumed.
You may also need to apply to the relevant Distribution Network Operator, or DNO, depending on the proposed system and connection arrangements. This is another reason why a proper feasibility assessment is valuable. The fact that a roof looks suitable for solar doesn’t necessarily mean the project can simply go ahead.
So, can a tenant install solar?
In many cases, yes. Being a tenant doesn’t automatically rule out commercial solar. It simply means there are additional property and contractual considerations to work through alongside the technical and financial aspects of the project. The best place to start isn’t with a panel count.
Start with the following questions:
- What does your lease allow?
- What does your landlord need to agree to?
- How much electricity does your business use?
- How long do you expect to occupy the building?
- What funding model could work for you?
- What happens to the system in the future?
Once you understand those points, you can start to assess whether solar makes sense for your business and what the right approach could look like. Of course, we always take a consultative approach to commercial renewable energy. That means understanding your building, your energy use and your objectives before recommending a solution.
If you’re a tenant wondering whether solar could work for your premises, it’s a conversation worth having. You may have more options than you think and our team at Harvest Green Developments is here to answer any questions you may have!
What are the next steps if I’m interested?
If you’d like to explore solar for a leased commercial property, the first step is to understand the opportunity and the considerations around your building and to discuss permissions and lease details with your landlord.
Let’s have a chat, discuss your site and we can help you understand what needs to be considered before you make a decision and understand the best solution for your business!
This blog post is intended as general information and does not constitute legal advice. Lease terms vary, so tenants should seek appropriate legal and property advice before agreeing to works or entering into a solar funding arrangement.
