Green Leases & Solar: Sharing Cost and Benefit
How green leases (the BBP toolkit) allocate who installs, who pays and how savings are shared — and why solar capex generally cannot go on the service charge.
A green lease is where solar stops being an engineering question and becomes a contract one. The panels can be specified, the roof can be loaded, the split incentive can be solved — but none of it holds unless the lease says who installs, who pays, who consumes and who keeps the benefit. For an owner of let commercial property, the lease is the instrument that turns a generation asset into shared value. Get the drafting wrong and you have a tenant who blocks the works, a service-charge dispute, or capex sitting on your balance sheet with the savings flowing entirely to someone else. This guide sets out how green leases allocate solar cost and benefit, what the BBP Green Lease Toolkit actually recommends, and the one point most generalist pages get wrong — that the capital cost of new solar plant is not recoverable through the service charge.
What a green lease is
A green lease is a conventional commercial lease with added clauses that commit landlord and tenant to operate the building in a more sustainable way. It is not a separate document or a special tenure — it is ordinary FRI or institutional lease drafting with environmental obligations bolted on, covering things like data sharing on energy and water use, restrictions on alterations that worsen the EPC, cooperation on efficiency works, and provisions for on-site renewable generation.
The point of a green lease, from an owner’s perspective, is alignment. A standard lease often pulls landlord and tenant in opposite directions on energy: the landlord owns the fabric but the tenant pays the bills, so neither has the full incentive to invest in the building’s performance. That is the split incentive in lease form. Green-lease clauses are the mechanism that lets you contract around it — they give the landlord a route to install, the tenant a reason to cooperate, and both a framework for sharing what the asset produces.
Green leases also matter increasingly for compliance and reporting. With EPC E now the binding minimum to let commercial property in England and Wales (unlawful below that since 1 April 2023), and EPC B by 2031 proposed for privately-rented non-domestic buildings over 1,000 m² (Government interim response, 18 June 2026, subject to secondary legislation), an owner needs the lease to permit the works that protect lettability. A lease that lets a tenant veto roof solar is a lease that can strand your own asset.
The BBP Green Lease Toolkit
The Better Buildings Partnership (BBP) Green Lease Toolkit is the recognised UK reference for green-lease drafting, and it is the document your solicitor and your tenant’s solicitor will most likely work from. It provides model clauses graded by ambition and a clear hierarchy for how a building should meet its energy from renewable sources.
The toolkit grades clauses by how binding and onerous they are:
| Clause tier | What it does | Typical use |
|---|---|---|
| Light green | Best-endeavours and cooperation language; non-binding intent to share data and act sustainably | Sitting tenants, short leases, sensitive negotiations |
| Medium green | Reasonable-endeavours obligations with defined actions, e.g. data sharing, cooperation on efficiency works | The common institutional position on new lettings |
| Dark green | Firm, enforceable obligations with measurable targets and consequences for breach | New-build, long leases, ESG-led tenants, portfolio standards |
Most negotiated outcomes land in the medium-green band: enough obligation to be meaningful, not so much that it derails the letting. An owner pursuing a portfolio rollout will usually set a dark-green or medium-green standard as the default and let asset managers dilute it deal by deal.
The renewable-energy hierarchy
The toolkit’s renewable-energy clause sets out a preference order for how the building meets its electricity. That order matters because it tells you which route the lease should privilege:
- On-site generation first — solar PV (and other on-site renewables) consumed at the building. This is the lowest-carbon, lowest-cost route because self-consumed solar displaces grid import at roughly 24–28p/kWh and avoids transmission and distribution charges entirely.
- Power purchase agreement (PPA) next — buying clean power, including a landlord-to-tenant or private-wire PPA from on-site solar where the building can’t fund the asset directly.
- Green tariff last — a renewable electricity tariff from the grid, which is the easiest to arrange but does nothing physical to the building and carries the weakest additionality.
For an owner, the hierarchy is useful leverage. It establishes on-site solar as the preferred, toolkit-endorsed route — not a landlord imposition — which makes the tenant’s cooperation easier to secure when you come to negotiate the works and the cost split.
How a green lease shares cost and benefit
This is where green leases earn their keep, and where the drafting needs care. The default position in most commercial leases is that the landlord owns the roof and the tenant pays the energy bills — so if the landlord funds solar, the savings flow to the tenant and the landlord gets nothing back. The lease has to redistribute that.
The governing principle the BBP toolkit and market practice apply is that a tenant’s contribution to solar costs is reasonable up to — and capped at — the tenant’s own energy savings. In other words, you can ask a tenant to contribute to the cost of solar, but only to the extent the solar saves them money. A tenant should never be worse off paying for the panels than they were buying grid power. That cap is the line that makes the contribution fair and the negotiation tractable.
How the split lands within that cap is negotiated case by case, and depends on who funds the install:
- Landlord funds, tenant pays a green contribution. The landlord installs and owns the solar; the tenant pays an agreed annual contribution — a green-lease service or a rent uplift — capped at their own measured savings. The landlord recovers capex over time; the tenant still pockets the margin between their saving and their contribution.
- Landlord funds, sells power via a PPA. The landlord installs and sells the generated electricity to the tenant at a unit price below grid. The benefit share is simply the discount to grid, and the lease references a separate PPA. This avoids the service-charge problem entirely because the cost is recovered through a power price, not a charge.
- Third party funds via a roof lease. A developer funds and owns the array under a roof or airspace lease; the owner takes rent plus, often, a tenant discount. The lease and the roof lease have to be reconciled, and the tenant’s cooperation captured in both.
In a multi-let building the sharing is more complex because savings have to be apportioned across several tenants, usually through MID-approved sub-metering, and each lease may sit at a different point in the green-clause spectrum. That is a drafting and metering exercise as much as a commercial one.
The service-charge truth most pages get wrong
The single most important point for any owner: under the RICS Service Charges in Commercial Property professional standard (2nd edition, in force 31 December 2025), the initial capital cost of new plant — which includes a new solar PV system — is NOT recoverable through the service charge. The service charge is for the cost of operating, maintaining and repairing the building’s existing services. It is not a vehicle for funding the landlord’s capital improvements, and a new solar array is a capital improvement.
This catches owners out repeatedly. The instinct is to install solar, put the cost on the service charge, and let the tenants pay it back. That is not compliant with the RICS standard, and a well-advised tenant will challenge it. What the service charge can legitimately carry is ongoing ESG and energy expenditure where it represents a genuine service to the occupiers — for example the cost of operating and maintaining the array once installed, energy monitoring and reporting, and proportionate sustainability management. The capital cost of the panels themselves is not a service; it is an investment.
So if the service charge is closed off, how does the landlord recover the capital? Through one of three routes:
- A PPA — recover the cost in the unit price of the power the tenant buys.
- A capped green-lease contribution — an agreed annual payment, sitting outside the service charge, capped at the tenant’s savings.
- Rent — fund the works and recover through a rent uplift or at the next rent review, subject to the usual improvement disregards.
Getting this right protects you on two fronts: it keeps your service-charge accounts clean and defensible, and it stops a recovery dispute that could sour the landlord-tenant relationship and stall the project.
Securing roof-works consent through the alterations clause
Even with the cost split agreed, the landlord cannot simply walk onto a let roof and start drilling. Where solar is going on space that is demised to a tenant — or where the works affect the tenant’s premises, access or services — the tenant’s cooperation is required, and the route to that cooperation is the lease’s alterations clause.
The alterations clause governs what changes can be made to the building and on whose consent. For an owner installing solar, two situations arise. If the roof is retained by the landlord (common in multi-let buildings where the structure and common parts are landlord-controlled), the landlord usually has the right to carry out the works, but the lease should still confirm rights of access and that the works won’t unreasonably disturb the tenant. If the roof or relevant space is demised to the tenant, the landlord needs the tenant’s consent or a positive obligation in the lease permitting renewable installations.
The practical fixes:
- On new lettings, build a renewable-energy clause into the lease that reserves the landlord’s right to install solar and obliges the tenant to cooperate, share half-hourly energy data, and not to do anything that worsens the building’s EPC.
- On existing leases, you are negotiating a variation or a side agreement, and the alterations clause and any landlord’s reservations are your starting point. The tenant-savings cap is your lever — the tenant gains cheaper power, so cooperation is rational.
- Always confirm the works sit within the landlord’s reserved rights for access, that they don’t breach the quiet-enjoyment covenant, and that any consequential matters — roof warranties, insurance, structural loading — are addressed.
What to put in a green-lease addendum
For owners who can’t fully renegotiate the lease, a focused addendum or side letter is the pragmatic instrument. A solar-specific green-lease addendum should typically cover:
- A renewable-energy clause confirming the landlord’s right to install and own (or lease the roof for) solar PV, reflecting the BBP hierarchy of on-site generation first.
- The commercial mechanism — PPA unit price, capped green contribution, or rent treatment — and an explicit statement that capital cost is not charged to the service charge.
- The tenant-savings cap, defining how the tenant’s savings are measured (sub-metered self-consumption against a grid reference price) and confirming the tenant’s contribution will not exceed them.
- Data-sharing obligations — half-hourly consumption data, so self-consumption and savings can be calculated and apportioned, which also feeds the owner’s ESG reporting.
- Access and alterations cooperation — the tenant’s positive obligation to permit the works and not to obstruct the system.
- EPC and MEES cooperation — a commitment not to act in ways that worsen the EPC, protecting lettability against the EPC E minimum and the proposed EPC B by 2031 standard.
- Operation and maintenance — confirming O&M responsibility and that legitimate operating costs (not capex) may be a service-charge or contribution item.
A short, well-drafted addendum that captures the cost mechanism, the savings cap and the access rights will do more to deliver a working solar asset than a hundred pages of best-endeavours intent. When you are ready to model the structure against a specific building and tenancy, request a quote and we will set out the lease and ownership route alongside the engineering.
Frequently asked questions
Can I put the cost of installing solar on the service charge?
No. Under the RICS Service Charges in Commercial Property standard (2nd edition, in force 31 December 2025), the initial capital cost of new plant — which a solar PV system is — is not recoverable through the service charge. The service charge covers operating, maintaining and repairing existing services, not funding the landlord’s capital improvements. You recover the capital through a PPA, a capped green-lease contribution, or rent. What the service charge can carry is the ongoing cost of operating and maintaining the array once it is installed, where that is a genuine service to occupiers.
How much can I ask a tenant to contribute towards the solar?
A tenant’s contribution is reasonable up to — and capped at — the tenant’s own energy savings from the solar. The principle, reflected in the BBP Green Lease Toolkit and market practice, is that the tenant should never be worse off contributing to the panels than they were buying grid power. So if a tenant saves £20,000 a year by self-consuming solar at roughly 24–28p/kWh instead of importing, the contribution must sit below that figure. The exact split within the cap is negotiated deal by deal and depends on who funds the install.
Does a green lease force my tenant to let me install solar?
Only if the lease says so. A standard lease does not automatically give the landlord the right to install solar on demised space — that depends on the alterations clause and the landlord’s reserved rights. On new lettings you build in a renewable-energy clause that reserves the right to install and obliges the tenant to cooperate. On existing leases you negotiate a variation or side agreement, and the tenant-savings cap is your lever: the tenant gets cheaper power, so cooperation is rational. The BBP Green Lease Toolkit provides the model clauses for this.
What is the difference between a green lease and a PPA?
A green lease is the overall framework of sustainability obligations between landlord and tenant; a PPA is one specific commercial mechanism for selling the solar power within or alongside that framework. The BBP toolkit ranks on-site generation first, then a landlord-to-tenant PPA, then a green tariff. A PPA is particularly useful because it recovers the cost of the solar through the unit price of electricity the tenant buys — which sidesteps the service-charge restriction entirely, since the tenant is paying for power, not a charge.