Contract Drafting Tips for Rooftop Solar and Carport Solar Leases

Originally published by the Daily Journal of Commerce on December 5, 2023.

Adding solar energy facilities to a rooftop or a parking lot is an excellent way to put developed land to even more productive use. Hosting a solar array can create value for a property via a new revenue stream from rent payments or, if the power is used on-site, via energy savings and environmental benefits. Solar developers look for large, flat roofs and/or sunny parking lots suitable for carport structures and typically seek to enter a lease agreement with the owner/occupant that will grant rights to build and maintain a solar facility, provide compensation for such rights, and allocate various costs and risks to each party.

Rooftop and carport solar leases are similar to typical commercial leases and to ground leases generally used for larger, ground-mount solar arrays, but also have several unique factors. Drafting a comprehensive and forward-thinking agreement for rooftop and/or carport solar facilities is a nuanced process, requiring careful attention to balance co-existing uses of the property. Here are some key tips and considerations to keep in mind when drafting such contracts.

Project scope

• Define the project clearly. Start by delineating the scope of the solar project, including its constituent parts (modules, racking, conduits, combiner boxes, weather station, wiring, inverters, transformers, communications equipment, energy storage facilities, etc.), where the equipment will be located, and the access routes for installation and maintenance. Using defined terms helps parties avoid ambiguities and draft with precision. The lease should also address the owner/occupant’s rights to continue using and maintaining existing infrastructure on the roof or elsewhere such as HVAC units, antennas, ladders, maintenance sheds, etc.
• Determine lease renewal and purchase option rights. If applicable, outline the terms and conditions for lease renewal. Consider whether the host should have the right to purchase the solar system at the end of the lease term and, if so, the method for determining the price.

Lease provisions

• Clearly identify in the lease any common areas and set forth rules for their shared use. Consider 24-7 rooftop access rights for maintenance, repair, and emergency situations. For carport arrays, clearly articulate the use of parking spaces under or near the solar system, including restrictions on parking during system installation or maintenance.
• Ensure rooftops are critically inspected prior to any solar installation. If repair or replacement is needed, the parties should complete such work prior to the installation and negotiate how to allocate the cost. Considerations include:

1. structural integrity of the buildings supporting solar panels and whether installation of solar facilities will void any warranty;
2. disruptions to solar facilities that general roof repairs or replacement and/or parking lot maintenance may have during the term of the lease. Solar companies will typically expect to control any necessary disconnection or removal of solar facilities for general roof repairs, and to be compensated by the host for any resulting costs and lost revenue. The terms and scope of such compensation are typically among the most heavily negotiated provisions in a rooftop solar agreement. Will compensation be for out-of-pocket costs only or also for all lost revenue? Will covered lost revenue mean only lost energy sales or also lost incentives such as tax credits? Will compensation be paid directly or via rent abatement?
3. anticipated maintenance schedules and notice requirements (allocate the costs and risks associated with such maintenance); and
4. impact of vehicle use near solar arrays (include provisions for regular maintenance and structural assessments).

• Ensure the lease includes covenants, representations, and warranties for compliance with all relevant laws, including environmental regulations, land use zoning, and safety and building standards. Also consider Americans with Disabilities Act requirements—the solar installation should not impede accessibility to the building or violate any parking regulations.
• Identify types of interests for financing. Solar companies may have lender requirements to satisfy, which might include needing a recordable, insurable interest in real property, the right to mortgage or collaterally assign its interest in the lease, and the ability to obtain estoppel certificates from the owner. Often, a comprehensive lease will create a combination of a leasehold estate, easements, and licenses for assorted purposes, depending on type of use, length of use, and the need for exclusivity, and will allow such interests to be recorded in the local real property records.
• Specify the insurance obligations of both parties. Consider providing mutual requirements with coverage on a per-occurrence basis and waivers of subrogation. Given the unique nature of rooftop and carport installations, specific insurance provisions may be advisable, such as coverage for damage to existing improvements, business interruption, and liability for third-party accidents.

In sum, when drafting lease agreements for rooftop or carport solar energy facilities, it is crucial to address use-specific concerns such as plans for common areas, compensation for lost revenue, and the appropriate types and scope of rights. Resist the temptation to be penny-wise and pound-foolish—a well-drafted lease can mitigate risks and pave the way for a mutually successful and profitable solar energy project.