Landlords have a limited time to cash in as subsidy switches from big to small-scale solar panel schemes
This article was published in Inside Housing on 15 July 2011.
Following last month’s Department of Energy and Climate Change fast-track review of the feed-in tariff available for large-scale solar schemes over 50kW, smaller-scale rooftop schemes should now be a focus for solar developers and housing associations.
This means that many developers will now be turning to housing associations seeking potential roof space on developments, since this will be one of the few areas where, for the time being, the FIT is unaffected and not subject to review in the immediate future.
Countdown to review
Having said this, there will be a wholesale review of the FIT scheme for implementation in April 2012 and, regardless, the level of the FIT will automatically reduce for installations which are accredited on or after 1 April 2012. If you can install, connect and get accreditation for a solar scheme by 1 April 2012, then the current level of FIT (31.4p for a sub 50kW scheme) will be locked in for a 25 year period.
For these reasons, now is a last chance to consider solar rooftop schemes before the FIT reduces.
There are, though, many considerations when contemplating a solar rooftop scheme.
For example, roofs should be specifically excluded from tenants’ leases to avoid the risk that the tenant exercises a right to acquire the freehold and, as a result, the solar photo voltaic panel installation. A separate lease of the roof should be granted to the owner of the FIT installation so that it is not subject to the right to buy.
Where grant funding is involved, this may prejudice the ability to claim the FIT. Careful consideration needs to be given to the precise nature of the funding which has been employed in the development.
Retrofitting panels to existing developments is likely to be complex and thought will need to be given to tenants’ rights. The tenants’ co-operation and consent will almost certainly be needed in connection with variations to their existing leases. This is needed to ensure that there is no risk of them acquiring ownership of the equipment under the right to buy and that you have the ability to install and maintain the panels, run cables through the property and connect to the grid.
Where developments or properties are used as security, the funder will need to be approached for consent to the scheme. There is a perceived lack of knowledge generally here on the part of funders and this consent can be difficult to obtain.
Bear in mind that where a landlord is contracting with a PV developer, it is likely to want a 25-year minimum lease of the roof space to match the duration of the payout under the FIT. If the landlord has future plans, for example, redevelopment, that cut across this, it may be fatal to the scheme and so you should raise this with the developer early on in case a break clause or shorter lease can be agreed.
It’s also worth checking the financial standing of PV developer. Due diligence should be carried out and make sure as far as possible that the developer is good for its promises.
If the PV developer is to be responsible for professional costs, make sure its solicitors provide an enforceable costs undertaking; if the scheme does not proceed, the developer may be reluctant to pay.
Clarify the payout from development. A landlord must be crystal clear about what it expects to get out of the development – free or low-cost electricity for tenants, a rental income from the developer, or a combination of both? Rental structures can be complex and will require specialist advice.
Be clear, too, about reinstatement/retention of panels at the end of the project. A landlord must be clear about whether it expects the developer to remove the panels at the end of the lease or whether it will retain them. They may be a valuable asset in 25 years’ time but the landlord may have future redevelopment or other plans. Reinstatement or retention should be at a landlord’s option given the potential uncertainty.
Finally, consider appropriate financial security for the performance of the developer’s obligations – bonds or parent company guarantees may be available.
For more information on any of the issues raised in this article, please contact Laurence Lacey.