– a no brainer for landlords?

The Feed-in Tariff Scheme (FIT) was introduced in April 2010 with the aim of opening up low-carbon electricity generation to homes and communities, allowing people to install electricity generating equipment and to receive a guaranteed payment for the electricity that they produce.

Only certain sources of energy are potentially eligible for FIT payments.  One source, Solar photovoltaic (solar PV), is very relevant to pubs and hotels and therefore the focus of this article. 

The FIT scheme applies to small scale installations with a net capacity of up to 5MW of electricity.  A pub with solar panels on the roof would be likely to fall into this category of generation.  Crucially, to be eligible for FIT payments, an installation must be certified under the Microgeneration Certification Scheme.

The installation of a FIT scheme requires not only the solar panels to be located on the roof of the pub but also the installation of a generation meter and an inverter to convert the DC current produced into AC current which can then be used in the pub.  You will need to consider where these meters and the necessary cabling can be cited and how much of an intrusion this will mean to the business of your existing tenant.

How does the scheme work?
In a domestic situation the householder who installs solar panels will receive FIT payments for any electricity that is produced whether ultimately used in the home itself or exported into the national grid.  These payments are in addition to savings that the householder makes to his energy bills because he is using some of the electricity which he has generated himself.

For example, A house with solar panels generates, say, 2,500kwh of electricity in a year.  It uses 1,500 kwh and exports 1,000kwh to the national grid.  A FIT payment of around £800 will be paid to the home owner (covering both the energy used and exported).  To run his house the homeowner needs to buy a further 3,000kwh of electricity at a cost of £300. This is a saving of £150 on his usual annual bill of £450 because this year he has used 1,500kwh of electricity that he generated himself.  Overall the homeowner makes a gain of £500 (£800 less £300 electricity bill). 

If these sorts of sums are multiplied across a whole estate it becomes a proposition which is definitely worth exploring. 

Rent my roof space or free solar PV schemes
There are now many companies who rent roof space from a property owner, install and maintain solar PV panels and take the FIT income for generation and export.  These schemes are called “free solar PV” schemes or “rent my roof space” schemes.  These schemes work in many different ways, for example, as part of the deal the generator may offer the occupier electricity at a discounted price.  Alternatively, in return for lower rent the generator may provide electricity to the building for free. 

These sorts of schemes can be very attractive to those with managed and tenanted estates.  The prospect of reduced energy bills is likely to be a benefit when marketing the premises to future tenants.

We set out some of the issues to consider when assessing whether this is a viable option for your premises or not:

Is planning consent needed?
One of the first issues which should be investigated is whether or not planning consent is required for the installation.  This is really an issue for the company wishing to rent the roof space rather than you as landlord.  If you have a listed building then listed building consent will also be needed.

How long should the lease be for?
In order for the tenant to earn sufficient FIT payments to satisfy its investment payback period you are likely to be required to grant a fairly long lease of the roof space, up to 10-15 years.  You should consider whether this fits in with your long term plans for the property or whether a break clause is needed in which case you should also remember to contract out of the Landlord and Tenant Act 1954. 

What is the deal?
This is obviously a matter for negotiation between you and the prospective generating company.  The lease will need to set out whether the energy generated can be bought by you or by the tenant of the property directly and at what rate. 

Are there any existing third party rights?
As landlord you should check that you own or have a lease over all the roof space and airspace above it.  It may be that one of your existing tenants already has a lease over the roof space. 

You should also check whether current tenants or neighbours have any existing rights over the roof space, for example, rights to install and maintain aerials, rights of access, rights of light.  Do you need the consent of your landlord, your lender or any of the existing tenants to grant a lease of the roof space?

Requirement to remove equipment
There is a risk that the equipment installed by the tenant on the roof may become a fixture and therefore owned by the landlord.  It is therefore important that the lease should specify that the equipment remains the property of the tenant and that he is required to remove all equipment from the roof at the end of the term and make good any damage.  Such specification in the lease should help in any argument that the equipment has become a fixture and the property of the landlord. 

You will need to consider whether you need to reserve yourself rights over the roof space for maintenance etc or for other tenants to reach their aerials.  Equally you will need to decide how best to grant easements to the tenant to enable cables to run and equipment to be installed in other parts of the building.

The detail of the scheme is complicated and you will need legal advice to ensure the documents are correctly drawn and you are fully protected.  You should contact Christopher Ainsworth for further information on 01908 350210.

The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.