Rooftop solar is no longer a niche ESG add-on. Rising energy costs, corporate net-zero commitments and tightening energy performance requirements mean that landlords and tenants across the office, retail, logistics and industrial sectors are increasingly asking the same question: who installs the solar PV (and increasingly the battery storage) on this building, who owns it, who gets the benefit of the power it generates, and what happens to it when the lease ends?
These arrangements sit awkwardly across several areas of property and energy law at once, and the market has not yet settled on standard drafting. This article sets out the main structuring options, the key risk allocation points we are seeing negotiated, and some practical drafting pointers for anyone advising on a rooftop solar or battery project on let or multi-let property.
Why is this landing on Real Estate lawyer’s desks now?
Three trends are converging. First, occupiers with net zero and sustainability reporting commitments want on-site generation to reduce Scope 2 emissions and hedge against grid electricity price volatility. Second, landlords are under growing pressure, including from Minimum Energy Efficiency Standards and from investor and lender ESG expectations, to improve the energy performance and credentials of their buildings. Third, falling equipment costs and improving battery economics mean that rooftop solar paired with on-site storage is now a realistic retrofit for standard commercial stock, not just purpose-built developments.
The result is that rooftop solar and battery projects are increasingly proposed mid-term, on buildings that are already let, rather than being designed in at development stage. That timing is what creates most of the legal complexity, because the parties are trying to carve a new, long-term physical installation and revenue stream into an existing lease structure that was not drafted with it in mind.
Lease, licence or something else?
The starting point is structural: does the installation sit under a new lease of the roof space, a licence to alter plus a wayleave-style licence to occupy, or is it simply installed by the landlord as landlord’s plant forming part of the building’s services?
Landlord-owned installation
Where the landlord installs and owns the system as part of the building’s plant, the position is relatively straightforward in structural terms: it is dealt with through the service charge and alterations provisions of the existing lease, and the generated power is typically applied to reduce common part or whole-building energy costs. The complexity here is less about title to the roof and more about service charge recovery, metering and apportionment, as discussed further below.
Tenant-owned installation on a single-let building
Where a single tenant wants to install and own panels on a roof it already occupies under its lease, this is usually handled as a licence for alterations under the existing lease (or a deed of variation), rather than a new demise, provided the tenant’s existing lease already extends to the roof or roof void. If it does not, the parties need a separate licence to occupy or a lease of the roof space running alongside (and ideally co-terminus with) the headlease.
Third-party operator installation (PPA and lease model)
Increasingly, the installer and owner / operator of the system is neither the landlord nor the occupying tenant, but a specialist solar or energy services company that funds, installs and maintains the system under a long-term agreement. This is usually structured as a lease or licence of the roof space granted directly by either the landlord or the tenant to the operator (depending on whether the roof space is within the tenant’s exclusive demise), coupled with a power purchase agreement between the operator and the tenant for the electricity generated, sometimes also with export arrangements for any surplus. This structure raises the most complex drafting, because now three parties and potentially three separate but interlocking documents need to be coordinated: the headlease, the roof lease or licence, and the PPA.
Key Drafting and Risk Allocation Issues
Term and co-terminosity
Solar and battery installations are typically financed on a 15 to 25 year payback basis, which rarely matches the length of the occupational lease under which the roof sits. Where the roof arrangement is not co-terminus with the headlease, the parties need to address what happens if the headlease ends early, whether by forfeiture, break or expiry, including whether the roof lease or licence survives independently, whether the incoming occupier is required to accept the installation and PPA, and whether the landlord has step-in rights to preserve the arrangement.
Ownership and fixtures
The lease or licence should state expressly whether the installed equipment is a tenant’s or operator’s fixture (removable, with reinstatement obligations) or a landlord’s fixture (which then needs separate provision for who bears maintenance and replacement cost over its working life). Silence on this point risks the equipment being treated as a landlord fixture by default at the end of the term, which is rarely what a third-party operator intends given its own financing and depreciation position.
Dilapidations and reinstatement at lease end
The default dilapidations position in most leases, requiring reinstatement of alterations, sits uneasily with an asset the parties may well want to remain in place (a working solar array is rarely something a landlord wants removed at lease end). The agreement should address, as a negotiated point rather than by accident, whether the tenant or operator must remove the installation and reinstate the roof, may elect to leave it in place for an agreed value, or must offer the landlord first refusal to acquire it. This should be dealt with expressly, rather than left to the general reinstatement clause, given how differently it cuts depending on which party is asked.
Access, insurance and health and safety
Rooftop electrical installations bring working-at-height and live-electrical-equipment risk that goes beyond a standard landlord’s right of entry clause. Access rights for inspection, maintenance and repair need to be clearly scoped, and insurance arrangements (including who insures the installation itself, and how it interacts with the building’s existing buildings insurance) should be addressed expressly rather than left to interact uncertainly with existing policies.
Practical Takeaways
- Identify the ownership model early: landlord-owned, tenant-owned or third-party operator-owned installations each point to a different legal structure, and retrofitting the wrong structure onto the wrong commercial deal is the most common source of later dispute.
- Treat fixtures, reinstatement and end-of-term treatment as negotiated points, not boilerplate: the standard alterations and dilapidations clauses in most leases were not written with a financed, income-generating asset in mind.
- Align the term of any roof lease or licence, and any associated PPA, with the term of the headlease wherever possible, and where that is not possible, build in express survival and step-in provisions.
Get this right at the structuring stage and rooftop solar and battery storage can be a genuine win-win: a new income stream or cost saving for landlords, an ESG and cost-of-occupation benefit for tenants, and a straightforward asset for operators to finance. Get the structure wrong, or leave it to boilerplate alterations and dilapidations clauses, and it becomes a source of dispute precisely when the parties most need to cooperate, at renewal, assignment or lease end.
For further information, please contact:
Tarik Kenan, Bird & Bird
