Page 14 - North American Clean Energy March/April 2020 Issue

solar energy
Making Sense of Your Industrial
Solar Lease
by Jennifer L. Ioli and Aaron Olson
3465 Heyco_NA 3.5x10_Layout 1 8/1/19 2:50 PM Page 1
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IN THE AGE OF CLEAN ENERGY,
property developments are evolving to accommodate eco-friendly trends. This push towards sustainability has prompted industrial property owners to implement green technology that not only bolsters their properties, but also allows them to maximize the profitability of their assets.
As with any new technology, rooftop solar leases possess nuances that set them apart from typical commercial leases. There are a few facets of solar leasing that owners should know about and fully understand.
Ownership
Solar leases generally contain an extremely specific delineation of who owns what. The solar facilities, which could be considered “fixtures” under property law, are expressly and exclusively owned by the solar tenant. In addition, solar leases specifically delineate who owns the various “Environmental Attributes” and “Incentives” that are allocated to or generated by a solar facility, including carbon trading credits, renewable credits, tax credits, accelerated depreciation, etc. (this is usually assumed to be the solar tenant). Care should be taken to ascertain each party’s ownership of the various assets, and Environmental Attributes and Incentives.
In addition, industrial property owners need to be mindful of whether they have granted rights in the building’s rooftop to any of the building tenants. In multi-tenant buildings, the landlord generally retains exclusive ownership and control of the roof. In single-tenant buildings or ground leases, the
roof may be under the tenant’s control, including maintenance
and repair rights. If the building tenant is responsible for the roof’s maintenance under the terms of
the building lease, the landlord may need to amend the building lease to obtain control over the roof and take over the maintenance and repair responsibilities, so that the landlord may legally lease the rooftop to the solar provider, if the economics work.
Financing
Given that solar developers make such a large scale, long-term investment in the solar facilities to be installed, they usually obtain leasehold financing from traditional lenders, and equity from tax credit investors. The federal investment tax credit is currently 26 percent of most of the costs of the solar facility, and is taken over the first five years of the solar facility’s operation. Solar lenders and tax equity investors require the solar lease to contain several lender-friendly provisions, including notice and cure rights, as well as other terms more likely to be seen in a ground lease than a building lease, including the right to obtain a subordination, non-disturbance, and attornment agreement (SNDA) from any landlord lenders.
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