As published in Bisnow on 28 April

As energy costs have risen along with concerns about carbon emissions, commercial landlords and tenants are turning to new sources of electricity. One increasingly popular option is to install a solar photovoltaic system on the roof. International, independent real estate consultancy Hollis has increased the number of these systems installed on industrial properties alone by 720% in the last year.

However, to avoid disputes between a landlord and tenant, clauses that apply specifically to dilapidations and PV systems need to be included in leases and licences, said David Cox, head of Hollis’ Newcastle office and an expert on dilapidations.

“Even two years ago, leases were written without PV in mind and there are no automatic rights to access the roof and so on,” he said. “If you create a lease today, the parties need to have a thorough discussion and include a specific section on PV. There are three times when a landlord and tenant should consider dilapidations: before, during and after installation.”

Before Installation

Cox laid out three key points that landlords and tenants need to consider before PV installation.

First, who has the right to install a system? Normally a tenant is responsible for maintaining the roof covering, but has no rights to the airspace above it. This distinction must be made clear, Cox said.

Second, a PV system has a life expectancy of 20-25 years, while a lease might be five years. So a landlord needs to think ahead, not just about what they want to do now to install a system but what they or a tenant will want to do in a few years’ time.

“If a tenant has equipment such as air conditioning on the roof, can a landlord move it to install PV?” Cox said. “Or if a new tenant wants to put equipment on the roof, does the PV system get in the way?”

Third, attention needs to be paid to the structure and condition of the roof, he said. Can it take the additional load? If a landlord needs to alter the structure of a building, this needs consideration in the lease.

Or, if the roof needs to be in good enough shape for a PV system to be installed, will the tenant pay for repairs?

“A landlord will need to make sure the roof lasts as long as the system, but often it’s up to the tenant to maintain the roof,” Cox said. “If the roof is considered to be OK for a few years, they won’t want to make repairs. A discussion will have to happen about who funds it and whether any warranties for roof materials are invalidated if a system is installed above.”

Dilapidations can be further complicated if a landlord uses a third party to install a system. A provider could install a system for free then supply cheap energy to the tenant. In this case, a landlord needs to make sure that what is agreed with the third party in terms of access works with what has been agreed with the tenant.

During Use

Once a PV system is installed, someone will need to access the roof to maintain it. If a landlord has installed it, they will need right of access. Generally, a landlord has the right to inspect a property but not an automatic right to access it to maintain a PV system, Cox said.

“Once a system has been in place a few years, the condition of the roof comes into question,” he said. “On the one hand, panels shade roof sheets, which should protect the roof from the sun. However, less rain hitting the roof sheets mean they won’t be washed with rainfall. Algy and salt can build up, while humidity beneath panels can cause corrosion.”

Both parties need to consider insurances and damages, Cox said. If the system damages the roof, such as through screw holes or because a panel has come loose, a discussion will have to happen about who is liable for repairs.

Removal Of A PV System

The main dilapidations consideration is whether the PV system needs to be taken away if a tenant has installed it and decides to leave, Cox said. Although a system is generally beneficial, there are reasons a landlord might want a departing tenant to remove it. It might be that a small system was installed to service particular machinery, but a new tenant/landlord or third party wants a much larger system to provide additional power.

“Generally, our tenant alterations service helps clients to be greener and to avoid disputes, so will encourage a tenant or landlord to install a system that is less bespoke,” Cox said. “It is far more sustainable to keep an existing system where possible.”

Overall, installing a PV system is more than likely to benefit both a landlord and tenant than cause issues, Cox said. If the right considerations are made when a lease is drawn up, any issues will be ironed out before they arise.

“It’s still relatively new for PV systems to be included on commercial properties, but we have no doubt it will continue to increase,” he said. “While landlords have different appetite to invest in solar PV, depending on the rent they can achieve, now more than ever they realise the need to factor a system in. Our role is for our PV specialists and dilapidations teams to work together to help clients include what they need to in a lease now.”