| Concern over greenhouse gas emissions (GHGs) | | | | find that the ownership of an intact and |
| has produced a new phenomenon – leases of | | | | functioning solar power facility represents a |
| rooftop space for the installation and operation of | | | | substantial benefit, particularly when the building |
| solar power facilities. | | | | owner has not itself been required to contribute |
| Last May Ontario passed the Green Energy Act. | | | | to the cost of the installation or maintenance. |
| One of its main objectives was to establish a | | | | Solar power facilities will normally have a useful life |
| feed-in tariff program (a "FIT" Program) whereby | | | | well in excess of 20 years. The building owner will |
| the Ontario Power Authority (the "OPA") | | | | be able to deal with the environmental attributes |
| committed to purchase, at very favourable rates, | | | | in whatever way it wishes at the end of the |
| all of the green energy produced in the Province. | | | | lease and at the same time will enjoy the benefit |
| In response to this incentive, owners of buildings | | | | of an essentially free form of renewable energy |
| are likely to be approached by solar power | | | | on its roof. Alternatively, the building owner may |
| companies wishing to lease rooftop space to install | | | | choose to itself enter into a power purchase |
| and operate green energy systems. | | | | agreement with the OPA at the end of the term |
| Pros and Cons | | | | of the rooftop lease, assuming the FIT Program |
| Once an application is approved by the OPA, the | | | | still exists. |
| applicant must sign a power purchase contract | | | | A further benefit flows from the fact that the |
| with the OPA for a term of 20 years. An | | | | solar panels will normally reduce energy costs in |
| important component of that contract is the | | | | the building due to the shading effect of the |
| transfer to the OPA of all of the environmental | | | | panels. Also, depending on the type of installation, |
| attributes associated with the project. As a | | | | the panels may extend the useful life of a roof |
| consequence, any carbon credits and renewable | | | | by serving as a buffer from the elements. |
| energy credits belong to the OPA and not to the | | | | Some Special Concerns |
| solar power company or the landlord of the | | | | Assuming a building owner has elected to lease its |
| property on which the solar power facility is | | | | roof to a solar power company, several concerns |
| installed. | | | | must be addressed: |
| Carbon credits arise under "cap and trade" | | | | • Non-disturbance agreements, consents or |
| systems such as that which Ontario intends to | | | | acknowledgements may be needed from |
| impose. Under a cap and trade system, energy | | | | mortgagees of the building or from ground |
| generating plants, commercial buildings, factories | | | | landlords. |
| and other facilities are restricted to a prescribed | | | | • The solar equipment may be subject to a |
| annual allotment of permitted tonnes of GHGs | | | | personal property security interest or lien in |
| emitted by their operations. If the annual allotment | | | | favour of a lender. The rooftop tenant's lender will |
| is exceeded, the facility owner must pay a fee or | | | | seek agreements from the landlord and the |
| fine to the regulating authority unless it is able to | | | | owner of the building as well as the mortgagees |
| purchase carbon credits. Carbon credits arise | | | | of the building to the effect that the solar power |
| where a facility succeeds in keeping or reducing | | | | facility will not be treated as a fixture and will |
| the GHGs that it emits below its allotment. Carbon | | | | remain the property of the rooftop tenant. The |
| credits can be bought and sold on a commodities | | | | lender will also seek an opportunity to cure |
| market. | | | | defaults of the rooftop tenant to avoid |
| Renewable energy credits occur where an | | | | cancellation of the lease. A forbearance |
| authority imposes a requirement that a stated | | | | commitment and an opportunity to assign or |
| percentage of energy used must be provided by | | | | transfer the rooftop lease to the purchaser of |
| renewable energy sources such as solar power, | | | | the solar power facility may also be required. |
| wind power, biomass and similar renewable | | | | • The production, review and approval of |
| energy facilities. To meet annual targets, users of | | | | detailed engineering drawings, inspection rights, |
| energy can purchase renewable energy directly | | | | supervision rights and adherence to approved |
| from a supplier or they can purchase credits that | | | | plans as well as all governmental requirements will |
| are used to fund renewable energy products. | | | | be important elements of the rooftop lease, |
| Twenty-nine U.S. states and the District of | | | | particularly with regard to the integrity of the roof |
| Columbia have established regulatory schemes | | | | and structure of the building. |
| mandating that the energy production of the | | | | • Alteration rights will also be contentious. The |
| state must be from renewable energy. U.S. | | | | tenant will need to limit changes to the landlord's |
| federal legislation is expected to establish a | | | | property that would interfere with sunlight, while |
| national program and Canada will almost certainly | | | | the landlord will be concerned about alterations |
| follow suit. | | | | that might affect its building. |
| At this time, environmental attributes do not have | | | | • Particular attention to maintenance and repair |
| a large value, but it is anticipated that their value | | | | obligations must be taken to ensure that the solar |
| will increase (perhaps very dramatically) within the | | | | power facility is always maintained properly and |
| not too distant future. Accordingly, before leasing | | | | safely. Solar power facilities will normally have a |
| out a roof to a solar power company, | | | | life expectancy well beyond the term of the lease |
| consideration should be given to the potential | | | | and the landlord will be concerned about asset |
| value of those environmental attributes. In the | | | | preservation. |
| absence of favourable tax treatment, | | | | • A sizeable deposit will be needed to protect |
| government grants or other forms of incentive, | | | | against damage to the building, and possibly the |
| the cost of installing a solar power facility on a | | | | cost of removing the solar panels and restoring |
| roof might make the investment unfeasible. | | | | the building at the end of the term. |
| Typically, a building, even one with a large roof, | | | | • There are specific insurance requirements, |
| would provide no more than 20% of its energy | | | | such as environmental damage and environmental |
| consumption through rooftop solar panels. | | | | impairment coverages, as well as boiler and |
| Furthermore, at present, the cost of electricity | | | | machinery insurance. Risk transfer clauses, such |
| purchased from the grid is still relatively low. | | | | as releases and indemnities, must also be |
| However, as the volume of solar power facilities | | | | specifically tailored. |
| production increases and anticipated developments | | | | • The need to relocate the solar power |
| in technology take hold, it is expected that the | | | | facility, or components of it, in order to allow the |
| cost of installing solar panels will reduce | | | | landlord to maintain and repair the roof or to |
| substantially. It may be in the interest of a building | | | | make alterations to the building must be |
| owner to hold off signing away the ability to install | | | | negotiated. |
| its own solar panels and to use its own electricity | | | | • Snow removal and snow disposal will be a |
| so that it can benefit directly from the carbon | | | | concern. |
| credits and renewable energy credits that the | | | | • Damage and destruction and rebuilding |
| project gives rise to. | | | | obligations associated with the building and the |
| On the other hand, the time frame during which | | | | facility, and various other concerns need to be |
| environmental attributes are likely to become | | | | addressed. |
| valuable, and the extent to which they become | | | | These items represent a small sample of specific |
| valuable, is uncertain. It may take several years | | | | concerns related to this type of lease. Daoust |
| before the markets mature and trading produces | | | | Vukovich LLP is able to assist in addressing all of |
| substantial benefits. | | | | the relevant concerns as it has investigated all |
| Also, at the end of the term of the rooftop lease | | | | leasing aspects of this emerging business |
| (typically a 20 year period), a building owner may | | | | opportunity. |