The three structures
1. Tenant-funded with landlord consent
The tenant funds and owns the solar install. Landlord grants consent through a green-lease addendum that typically specifies: location and size of installation, structural and weather-tightness obligations, ownership at lease end (remove, transfer, or buy out), maintenance responsibilities, and insurance allocation.
Best suited to: tenants with long remaining lease terms (10+ years), strong covenant, control of single-tenant building, sustainability budget for capex. Captures 100% of solar economics. Tenant exit obligations and lease-end ownership transfer are the main negotiating points.
2. Landlord-funded with service charge recovery
The landlord funds and owns the install. Electricity supplies landlord-controlled areas (lifts, corridors, plant, common parts), reducing the electricity cost line in the service charge. The capex is recovered over time through the standard service-charge apportionment — meaning tenants effectively contribute to capex through their existing service-charge obligations.
Best suited to: multi-let buildings where landlord controls common parts and plant; landlords with portfolio-wide capex programmes; situations where direct tenant supply is impractical. Must comply with RICS Professional Statement on Service Charges in Commercial Property 2018 — specifically the "reasonable" and "transparent" tests.
Limitation: only the proportion of solar generation that supplies landlord-controlled areas can be recovered through service charge. Typically 25-40% of total generation. The remainder requires sleeve PPA, sub-meter arrangement, or export under SEG.
3. Third-party PPA (Power Purchase Agreement)
A third-party developer funds, owns, and operates the install. Tenants and/or landlord buy electricity from the system at a discounted per-kWh rate under a 15-25 year PPA contract. Zero capex for either landlord or tenant. Cash-flow positive day one.
Best suited to: capex-constrained landlords and tenants; multi-let buildings with complex tenant mix; situations where neither party wants long-term operational responsibility for the asset. PPA provider takes the technology and performance risk.
Watch outs: long-term commitment (15-25 years), PPA provider has roof rights for full term (restricts other uses), exit costs at break clauses can be material, building sale requires PPA novation or buy-out.
The RICS Code 2018 service charge framework
The RICS Professional Statement on Service Charges in Commercial Property 2018 provides the regulatory framework for service charge recovery on multi-let commercial buildings. Three principles matter for solar capex recovery:
- Transparency. Service charge expenditure must be clearly disclosed to tenants with sufficient detail to verify the reasonableness of the cost.
- Reasonable. Costs must be incurred reasonably and proportionately. Solar capex passes the test where the system benefits tenants and where the cost is competitive with alternative measures.
- Communicated. Material proposals must be communicated to tenants in advance with opportunity to comment. Solar installations meet this threshold and typically require 60-90 day tenant consultation periods.
We provide draft service-charge schedules, tenant communication templates, and RICS-compliant cost documentation as part of the install package for landlord-led projects.
Green-lease addenda — what they cover
A green-lease addendum is a supplementary lease document covering sustainability obligations between landlord and tenant. For solar installations, key provisions cover:
- Permission to install (rooftop / car park / façade)
- Structural and weather-tightness obligations during install
- Ownership during lease term and at lease end
- Maintenance and access rights
- Insurance allocation (typically tenant insures own asset; landlord insures building)
- Smart Export Guarantee revenue allocation
- Make-good obligations on lease end
- Cost-recovery provisions (where solar supplies landlord areas)
The Better Buildings Partnership publishes a Standard Green Lease Toolkit which provides off-the-shelf clauses adopted by many major UK landlords (British Land, Landsec, Great Portland Estates).
Dilapidations and exit strategy
Tenant-installed solar typically has make-good obligations at lease end — remove the system, repair the roof, restore to pre-install condition. Where the make-good cost is material, tenants often negotiate green-lease provisions allowing transfer of ownership to landlord at lease end (often at nominal value) in exchange for waiver of make-good obligations.
Landlord-installed solar is a building improvement. No make-good obligation arises from the landlord's own asset. The system stays with the building on sale or end of letting.
PPA structures have specific exit and novation provisions written into the PPA contract. On building sale, the PPA must transfer to the new owner or be bought out by the seller. Buy-out values are usually defined by a present-value calculation of remaining PPA payments.
Rent review impact
Solar PV improves building value through (a) lower operating costs, (b) higher EPC rating, (c) MEES 2030 future-proofing, and (d) tenant attractiveness. On a rent review the practical impact varies by lease type:
- Open market rent reviews: hypothetical lease assumption captures the improvement; comparable evidence shifts over time as PV becomes standard expectation.
- Indexed rent reviews (RPI/CPI): no direct impact at review; capture is via lease renewal.
- Turnover rent (less common in offices): improved business operating environment may lift turnover modestly.
Where the tenant funded the install, the lease often includes "disregards" excluding tenant improvements from rent review valuation. Specific drafting matters and depends on the exact lease wording.
Common landlord-tenant structuring questions
Can a tenant install solar on a leased office?
Yes, with landlord consent. The usual route is a green-lease addendum where the tenant funds the install, retains ownership during the lease term, and either removes the system at lease end (with make-good obligations) or transfers ownership to landlord. Some leases include "alterations" consent provisions that require explicit landlord approval for major alterations including solar.
How does a landlord recover solar capex through service charge?
Where solar electricity supplies landlord-controlled areas (lifts, corridors, plant, common parts), the capex can be recovered through the service charge as an electricity cost reduction flowing through to tenants. The arrangement must comply with the RICS Professional Statement on Service Charges in Commercial Property 2018. Direct supply to tenants requires a sleeve PPA or sub-meter arrangement.
What is a sleeve PPA?
A power purchase agreement where the landlord (or third party) supplies electricity directly to one or more tenants through the building's metering infrastructure. The tenant signs a long-term agreement to buy electricity at a discounted per-kWh rate. Often requires Class Exemption Order under the Electricity Class Exemptions Order 2001 if supplying multiple tenants.
How does solar affect dilapidations?
Tenant-installed solar typically has make-good obligations at lease end (remove system, repair roof). Landlord-installed solar is a building improvement that benefits landlord. Green-lease addenda often waive make-good obligations on solar in exchange for the landlord receiving the asset at lease end.
Does solar affect rent review?
Generally yes — solar improves the building's EPC rating, reduces operating costs, and uplifts asset value. Rent reviews on multi-let buildings typically capture some of this uplift through comparable evidence and the hypothetical lease assumption. Where the tenant funded the install, rent review may be subject to disregards depending on lease terms.