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COMMERCIAL LEASING: Rooftop Solar Panels

Rooftop Solar Panels

A number of landlords, owners, and tenants have recently received inquiries from rooftop solar panel installers desirous of installing solar panels on their roofs. In principle, the idea of encouraging green initiatives sounds like a good one. However, in circumstances in which the owner is not the end user of the building (it has a tenant) or is thinking of selling the building, further consideration may be required before entering into licences for solar panels.

The first thing to consider is whether or not the landlord, owner, or tenant is in control of the roof at all. Generally, in ground leases, the landlord leases the entire property and building to the tenant. Hence, it is the tenant and not the landlord who has control of the roof. It is possible that in a single tenant building, the landlord has given the responsibility of the roof to the tenant. It is also likely that the lease has allocated obligations in respect of the roof between the landlord and the tenant. It could be that the tenant does the regular repair and maintenance work of the roof, while the landlord is required to bear the capital costs in respect of the roof. It could also be that the landlord keeps all of the roof obligations, but some of the costs are paid by the tenant. There may also exist in the lease certain distinctions between structural and non-structural portions of the roof.  Having regard to all these factors, the first step in any discussion of whether or not to license the roof for the use of solar panels is to take a look at the leases affecting the building. The second step is to determine how the costs are shared between the landlord and the tenants with respect to the roof. The third step is to determine whether or not any licence fees earned by the landlord or the tenant in respect of the solar panels are to be used for other operating costs or are meant for the landlord’s or tenant’s account alone.

There are also “shadow anchors”, which might limit rooftop use or require certain equipment to be screened from view (which could hamper the operation of the panels), and which might prescribe maximum building heights (which heights are perhaps affected by rooftop installations). It is therefore necessary to review any reciprocal operating agreements or agreements with such “shadow anchors”.

Finally, it is imperative to take a long, hard look at the licence or lease itself.  The landlord’s responsibilities are not over after selecting the sites of location of the panels. Their weight and impact on the roof, the allocation of responsibility for maintaining, repairing, upgrading (as the technology evolves), replacing, and insuring the panels, relocation rights, relocation costs, and so on, are matters for consideration of the landlord.  The landlord also has to think about who is responsible for the removal of ice and snow beneath the panels, the origins and destinations (terminals) of the wires going to and from the panels, and whether or not the installation of the panels will affect any existing warranties, guarantees, or any signage, dedicated HVAC, telecommunication or satellite rights granted to others. Further things to consider are whether or not the installation of the panels will affect other utilities in other premises and who gets the carbon credits that might be associated with the panels. It has to be ascertained that no hazardous substances are involved.

The landlord and/or tenant has to think deeply whether or not the licence or the lease, which is usually for a long period of time, is one that can be terminated or one that could be assumed by a transferee. It is crucial for an owner to double check the financial wherewithal of the licensee, and whether or not the licensee is a newly incorporated (hollow) shell organization or an entity that can live up to its obligations under the licence for the long term.  An owner also has to consider whether or not the licensee is entitled to transfer the obligations mentioned earlier to another party with or without discussion with the landlord.

Considerations like the above, as well as some others, should be taken into account before a landlord and a roof top solar panel provider enter into a long term arrangement with respect to any property.

Don’t make a move before fully understanding your rights and obligations. For more information and assistance regarding commercial leasing in Ontario contact Levy Zavet PC (Levy Zavet) in Toronto, Ontario today.