Landlord vs Tenant: Who Benefits From Commercial Solar

The split-incentive problem in plain terms

Solar on an owner-occupied building is simple: the same party pays for the panels and pockets the saving. Let commercial property breaks that neat loop. In most leases the landlord owns the roof and the building fabric, but the tenant holds the energy supply and pays the electricity bill. So if the landlord installs solar panels for commercial property at their own cost, the bill saving flows straight to the tenant, while the landlord is left holding the capital outlay and the maintenance. Economists call this the split-incentive problem, and it is the single biggest reason good commercial roofs sit empty.

It is worth being precise about who holds what, because the fix depends on it. The landlord owns the asset, claims any capital allowance, carries the EPC and MEES obligation, and owns the building’s capital value. The tenant occupies the space, pays for power under their own supply contract, and is the one who would see a smaller bill. Solar sits awkwardly across that divide. The good news is that the divide is well understood and entirely solvable, and which solution fits depends on who funds the system. This guide compares the three routes and shows how to share the value fairly.

Three ways to fund solar on a let building

There are three realistic structures for a let commercial building, and they allocate the cost, the saving and the obligations very differently.

Landlord-funded. The landlord pays for the system, owns it, and claims the tax relief. Left untouched, the bill saving goes to the tenant, so the landlord needs a lease mechanism, usually a service-charge contribution or a rent adjustment, to recover a share. The payoff for the landlord is direct ownership of an asset that lifts the EPC band and protects lettability.

Tenant-funded. The tenant pays for the system and keeps the full bill saving. Because the tenant rarely owns the building, they need the landlord’s consent to install on the roof, and a clear agreement on what happens at lease end. This route works best on long leases where the tenant has time to recover the cost before they move on.

PPA or third-party-funded. A funder owns and maintains the array on the roof and sells the power to the occupier at a rate below the grid price. Nobody on the lease puts up capital, the funder claims the allowances, and the saving is shared through the discounted power price. It removes the split incentive by introducing a fourth party who carries the capital risk.

How they stack up

The three routes line up cleanly on the questions that decide a let building:

Factor	Landlord-funded	Tenant-funded	PPA / third-party
Who pays the capex	Landlord	Tenant	Funder (none on lease)
Who gets the bill saving	Tenant, unless lease shares it	Tenant in full	Shared via discounted power price
Who claims capital allowances	Landlord	Tenant	Funder
Lease / consent needed	Service-charge or rent mechanism	Landlord consent to install	Roof lease plus power agreement
EPC and MEES benefit	Landlord (owns the uplift)	Landlord (benefits anyway)	Landlord (owns the uplift)
Best fit	Landlord wants the asset and EPC gain	Long lease, tenant with capital	Short or mid lease, no appetite for capex

The pattern is worth reading carefully. Whoever funds the system claims the tax relief, but the EPC and MEES uplift attaches to the building and therefore always benefits the landlord, even when the tenant or a funder pays. That is the quiet reason a landlord should care about solar regardless of who funds it: the asset gets better. For the broader is-it-worth-it framing for owners and landlords, see is solar worth it for commercial property.

Green leases, service charge and the MEES driver

The mechanism that turns any of these routes into a fair deal is the lease itself. A green-lease addendum is the standard tool. It is a clause set, bolted onto a new or existing lease, that records who funds the system, how the saving is shared, who maintains it, and what happens at expiry. Institutional landlords increasingly recognise green-lease language, and bodies such as the Better Buildings Partnership publish toolkits that make the drafting routine rather than bespoke.

On a single-let building the simplest fix is a modest service-charge contribution from the tenant set against their lower energy bill, so both parties are better off than before. On a multi-let or mixed-use building the metering is harder, because several tenants each hold their own supply, so landlords use an allocation model such as a sleeve PPA or virtual net metering, with cost recovery handled through the service charge under the RICS Code on Service Charges 2018. The principle is the same in both cases: the lease, not the inverter, decides who wins.

Underneath all of this sits the regulatory driver that increasingly forces the conversation. The Minimum Energy Efficiency Standards already bar the letting of the worst-rated non-domestic property, and the threshold is set to rise toward band C by 2027 and band B by 2030. Solar is one of the few single measures that can lift a building several points, commonly moving a band D to a C or a C to a B, so it has become a lettability question rather than purely an energy one. A landlord facing a sub-standard building is not really choosing whether to improve the bill, they are choosing whether the building can lawfully be let at all. The official position is set out in the government’s MEES guidance.

A worked example

To make the split concrete, here is an illustrative case. A landlord lets a 1990s light-industrial unit to a single tenant on a ten-year lease with five years left to run. The unit needs a roughly 120 kW array costing in the region of £130,000 before tax relief, generating around 110,000 kWh a year, of which the tenant would self-consume most during daytime operation.

Under a pure landlord-funded structure with no lease change, the landlord carries the full cost and the tenant banks a bill saving worth perhaps £18,000 to £22,000 a year, an obvious imbalance. The fix the parties agreed was a green-lease addendum: the landlord funded and owns the system and claims the Annual Investment Allowance, taking the illustrative net-of-tax cost toward £97,500, while the tenant pays a service-charge contribution set below their bill saving, so the tenant is still better off month one and the landlord recovers a fair return alongside an EPC uplift from band D to C that protects the building under MEES. Had the tenant held a fresh fifteen-year lease and wanted control, a tenant-funded purchase would have made sense instead, and had the lease had only two years left, a PPA would have been the clean answer. The figures are illustrative and depend entirely on the building, roof, load profile, tariff, tax position and lease.

How to choose

The decision follows from two questions: how long is the remaining lease, and who has both the appetite and the capital to fund the system.

• If the landlord wants to own an improving asset and the lease has reasonable term left, a landlord-funded install with a service-charge or rent mechanism captures both the EPC gain and a share of the saving.
• If the tenant holds a long lease and has capital to deploy, a tenant-funded purchase keeps the full bill saving with the occupier, with landlord consent and a clear end-of-lease plan.
• If the remaining term is short or neither party wants capex, a PPA removes the split incentive entirely, gives the landlord the EPC and MEES benefit, and shares the saving through a discounted power price.

Whichever route fits, the lease has to be drafted around it from the outset, because retrofitting the commercial terms after the panels are on the roof is far harder than agreeing them first. The sensible next step is to model the routes against your real building and lease. Review the cost guide for the underlying project values, the grants and funding routes that remove the capex barrier, and the savings calculator for an instant indicative figure. When you are ready, request a free feasibility and we will model the landlord, tenant and PPA options against your own meter data, roof drawings and lease.