Commercial landlords and property managers under pressure to meet sustainability targets are turning to third party leases sold as attractive alternatives if they don’t have the capital to invest in rooftop solar themselves. 

But according to Longevity Power these deals often aren’t as lucrative as they seem, with many landowners overlooking the potential risks.

Third party solar PV agreements involve the provision of a building roof for a solar PV system that is owned by a third party and leased to an asset manager over a set period, typically 20 to 30 years.

As a result, landlords and tenants become trapped in lengthy and expensive contracts that are even more costly and time-consuming to get out of, Longevity claims.  

The company says managers and landlords typically turn to these types of deals for two reasons.

First, an unwillingness to part with the capital due to a sense that they are unlikely to make a good return on investment over the hold period of the asset: second, in some markets, the tax implications associated with a commercial landlord selling electricity preclude them from installing solar.

A spokesperson says: “Despite having the best of intentions, asset managers find themselves in contracts that can last more than 20 years and include complex and unclear commercial terms.

“These contracts can often be hugely damaging long-term as they will likely stipulate that the landlord must pay for any loss of income in the event that the system needs to be switched off or disrupted for any period longer than a few days. 

“If an entire rooftop has to be replaced, this means potentially compensating the third-party for loss of revenue for several months, which depending on the system size, could run into the hundreds of thousands.”

Longevity contends that third party deals aren’t inherently bad but are instead largely misunderstood and can leave some asset managers trapped on a long-term basis. 

The alternative for anyone considering solar PV is the option of investing in a rooftop PV system directly. 

Owning the system means enjoying the full financial benefits and also having the flexibility to develop the system and surrounding areas over the coming years. 

“The landlord also has a greater degree of certainty over the costs associated with future roof works and essential maintenance, and doesn’t have potentially large financial liabilities in the event of a vacancy or a roof replacement” the spokesperson adds.