Understanding the rooftop solar leasing agreement

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Most rooftop solar developers require an option to lease the rooftop. The option will permit the operator to have access to inspect and test the rooftop and do such other investigations as it deems necessary to satisfy itself that the location is suitable for a solar PV array and that the building owner is in a position to grant a lease to it. The option will be open for exercise by the operator for a period sufficient to enable the operator to conduct such inspections and investigations and to apply for and obtain a Feed in Tariff (“FIT”) program approval or enter into a power purchase agreement (“PPA”) with the local electrical utility. The option agreement will provide that if the developer exercises its option, the parties will enter into a lease of the rooftop area on the terms set out in the option agreement.

Generally the rooftop lease is signed for 20 years (to match the term of the FIT or PPA) and the tenant/installer will most likely ask for the exclusive option to renew the lease. Renewal rights are potentially important, as it is anticipated that the productive life of the solar photovoltaic (“PV”) array equipment may be substantially longer than 20 years. Rent can be structured in several ways. Usually, it will be a fixed, all-inclusive “gross” rent, but it may be calculated based on the size of the roof area or the portion of the rooftop utilized, the wattage produced by the facility, a percentage of the revenues received by the tenant, or on some other basis. In addition, the lease may provide for the tenant to pay for its electricity consumption and for any realty taxes associated with the solar PV array.

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