Roof Lease vs PPA vs Licence: Sell the Roof or Fund It?

The question is not “should I put solar on the roof?” — it is “who owns the asset, who carries the capex, and what legal interest do I grant over my building?” Those are three different decisions, and the wrong combination can complicate a refinance, trigger a stamp duty charge, or leave you with reinstatement liability you never priced. This guide separates the three instruments owners get confused — a lease, a licence and a power purchase agreement — and walks through the consents, tax and end-of-term mechanics that a generalist installer will not raise because they sit outside the panels-and-inverters scope.

If you are weighing whether to spend your own capital or let a developer fund it, the structuring decision matters more than the kit. A 250kWp array is a 250kWp array whoever owns it; the difference between routes is who takes the return, who carries the risk, and what you have signed away on your title.

Three instruments, three different things

The first source of confusion is treating “roof lease”, “licence” and “PPA” as competing products. They are not the same kind of thing. Two of them are about the right to occupy your roof; the third is about who buys the electricity. You can combine them.

A lease grants a legal estate in the roof

A lease gives the developer exclusive possession of a defined part of your building — typically the roof slab, the airspace above it and a route for cabling and an inverter location — for a fixed term, usually 20 to 30 years. It is a property interest, not just a contract. That has consequences a licence does not:

• It is a registrable disposition: a lease over seven years must be registered at HM Land Registry as a separate title against your freehold or headlease.
• It can carry Stamp Duty Land Tax where there is a premium or rent above the SDLT thresholds — the net present value of the rent over the term is the relevant figure, and on a long roof lease this can be material even at a low annual rent.
• Because it is an estate in land, it usually binds successors — a buyer of your building takes subject to it, and your lender’s security is affected by it.
• It almost always needs mortgagee consent, because you are granting a third party a long-term interest that ranks against the freehold the bank lent against.

A lease gives the developer the strongest position and the cleanest financing, which is exactly why developer-funded “sell the roof” deals are usually structured as leases. It also gives you, the owner, the most to think about.

A licence is permission, not an interest

A licence is a contractual permission for the developer to install and operate equipment on your roof. It does not grant exclusive possession and it does not create an estate in land. Practically:

• It is not registrable and (correctly drafted) does not attract SDLT.
• It is personal — it does not automatically bind a purchaser of the building unless they agree to step in, which makes a licence weaker security for a funder.
• It is, in principle, easier to terminate, though a serious developer will want contractual protection (and a fixed term) before committing six-figure capex.

The trade-off is plain: a licence is lighter on your title but gives the developer a weaker, less financeable position. For larger developer-funded arrays you will usually be asked for a lease, because no funder lends serious money against a permission that does not run with the land. Beware the document labelled a licence that contains exclusive-possession wording and a long fixed term — the courts look at substance, not the heading, and it may be a lease in all but name (with the SDLT and registration consequences that follow).

A PPA is the power-sale contract that sits alongside

A power purchase agreement answers a different question entirely: it governs who buys the electricity the array generates and at what price. It is not a property interest at all. A PPA can sit on top of either a lease or a licence, or it can stand alone where you own the array yourself and sell power to your tenant.

In a developer-funded roof lease, the deal usually bundles a lease (the developer’s right to the roof) with a PPA (the building’s occupiers buy the on-site power at a discount to grid). The detailed economics of behind-the-meter and private-wire supply — pricing, metering, who is the supplier of last resort — are covered in our landlord-to-tenant PPA and private wire guide. For this guide the point is structural: the PPA is the revenue contract; the lease or licence is the occupation right. Keep them distinct in your head and in the drafting.

The developer-funded roof lease: “sell the roof”

This is the option most owners mean by “sell the roof”, and for a landlord with limited appetite to deploy capital it can be attractive.

How it works: a solar developer funds, installs, owns, insures and maintains the array for the life of the lease (20–30 years). You grant a roof or airspace lease. In return you typically receive a rent — either a nominal sum, a fixed base rent, or a base rent plus a share of generation revenue — and the occupying business buys the on-site power at a discount to the grid price under the PPA. At the end of the term the developer either removes the system or, increasingly, the asset transfers to you.

What you get:

• Zero capex. The developer carries the £35k–£500k+ outlay, the G99 grid-connection risk and the construction risk.
• A rental income stream plus a marketing asset — a building that delivers cheaper, lower-carbon power to its tenants.
• An EPC and ESG benefit that helps you let and re-let the space.

What you give up:

• The capital value of the array and most of the savings. The discount the tenant enjoys is set so the developer’s economics work; the bulk of the value goes to whoever funded it.
• Control. It is the developer’s asset on a long lease. You cannot simply re-roof, redevelop or re-tenant without engaging the lease terms.
• The export surplus. Power the building does not self-consume is usually exported and that revenue accrues to the developer, not to you. So do the REGO certificates (see below) unless you negotiate them back.
• “No sun, no power.” The on-site supply only displaces grid import when the sun is shining; the tenant still needs a grid contract for everything else. A roof lease does not make a building self-sufficient and should never be sold that way.

The roof lease suits an owner who wants the asset-value and lettability uplift without spending capital or taking technical risk, and who is comfortable granting a long interest over the building. It is most common on let investment property — see solar for let investment property — and on large single-let industrial sheds where the roof area is generous and the occupier’s daytime load is high, as covered under industrial and logistics property.

The owner-funded alternative

If you fund the array yourself — most natural for an owner-occupier, but also viable for a landlord supplying common parts — you keep 100% of the economics: self-consumption savings, export revenue, REGOs and the asset on your balance sheet. You also carry the capex and the operational responsibility.

The capital allowances position differs from the leasing route and is worth taking advice on. Solar PV is a special-rate (integral feature) asset. An owner that uses the array in its own trade can typically claim the 100% first-year deduction via the Annual Investment Allowance (£1m, permanent). But the AIA and the 50% First-Year Allowance under full expensing are not available for plant bought to lease to someone else — so a landlord who installs an array purely to sell power to tenants generally falls back on the 6% writing-down allowance. That single distinction often swings the buy-versus-lease maths and is set out in full in our capital allowances and funding guide. Treat the figures as illustrative and confirm your position with your tax adviser (HMRC’s integral-features guidance is at CA22335).

Comparison: lease vs licence vs PPA

Consents, tax and end-of-term: what installers leave out

These are the items that decide whether a roof deal is clean or a future headache. None of them is on a standard installer quote.

Mortgagee and lender consent — and the refinance question

If your building is mortgaged, granting a 20–30 year lease over the roof affects the asset your lender holds as security, and the loan terms almost certainly require their consent. Banks will usually grant it, but they will scrutinise the lease and may want a direct agreement (a lender step-in) so that if they enforce their charge the array does not frustrate a sale. Raise it early: a deal that is structurally sound but that your lender will not consent to is a dead deal. Think also about LTV and the next refinance — a valuer must understand the roof lease and the income, or it can be mishandled in a valuation. These and the wider transaction checks belong in your structured owner’s due diligence before you sign anything.

Insurer notification — and BESS fire risk

Your buildings insurer must be told before an array goes on. A failure to notify a material alteration can prejudice cover. Most insurers are comfortable with rooftop PV provided installation meets standards, but they will ask questions about roof loading, fixing method, isolation and fire response. Where the scheme includes a battery (BESS), expect closer scrutiny — lithium battery fire risk, separation distances and suppression are now standard underwriting questions, and some insurers price or restrict cover accordingly. Confirm in writing that the array (and any battery) is covered, and who insures what: in a roof lease the developer typically insures the equipment while you insure the building.

Dilapidations, reversion and roof reinstatement

This is the most-overlooked clause and the one most likely to cost you. Address it explicitly:

• Reversion of the asset. At the end of the lease, does the array stay (transferring to you, often at nil or nominal value) or does the developer remove it? An ageing array nearing end of life may be a liability rather than a gift — model both.
• Roof reinstatement. If equipment is removed, who makes good the roof penetrations and finishes? Pin down a reinstatement standard so you are not left with a leaking roof and a clause that is silent.
• Lifecycle alignment. A 25-year lease over a roof membrane with 10 years of life left is a problem in waiting. If the membrane needs replacing mid-term, removing and refitting an array is expensive and disruptive. The clean answer is to align the works — re-roof and install in one project — rather than bolt panels onto a roof you will have to strip back in eight years.
• Dilapidations interaction. Where the building is let, make sure the roof lease and your occupational leases do not leave you exposed on dilapidations at the wrong end of the chain.

REGOs — a separate value stream most providers ignore

Every megawatt-hour your array generates can earn a Renewable Energy Guarantee of Origin (REGO) certificate, worth in the region of £15 per MWh as a tradable green-attribute. On a 250kWp array generating roughly 235,000 kWh a year that is a four-figure annual stream — small against the energy savings, but real, and routinely left on the table. For systems of 50kW or under the MCS certificate can evidence the generation; above 50kW you register with Ofgem. In a developer-funded roof lease the REGOs usually accrue to the developer by default — if you want them (or want to allocate them to the tenant’s net-zero reporting), negotiate them in the heads of terms, because they are rarely volunteered.

Which route fits

• Owner-occupier, capital available: fund it yourself. You keep all the economics, the AIA position is strongest, and there is no third-party interest on your title. See owner-occupied commercial property.
• Landlord, no appetite for capex, generous roof, high-load tenant: a developer-funded roof lease is the natural fit — rent, a tenant discount and an EPC/ESG uplift for zero outlay. Negotiate REGOs, surplus export and reversion.
• Lighter-touch or shorter horizon, or a building you may redevelop: a licence keeps your title clean and your options open, accepting that fewer funders will back it.
• You own the array and want to supply your tenant: the lease/licence question may not arise at all — what you need is a well-drafted PPA. See the landlord-to-tenant PPA and private wire guide.

Most owners benefit from modelling at least two routes side by side before committing. The structuring decision — not the choice of panel — is where the value and the risk sit.

Frequently asked questions

Does a roof lease count as selling part of my building?

In legal terms, yes — you are granting a property interest, not just permission. A lease over seven years is registered at the Land Registry as a separate title and binds a future buyer of the building. You retain the freehold and the building reverts to you at the end of the term, but for the life of the lease the developer holds an estate in the roof and airspace. That is precisely why mortgagee consent and SDLT need checking before you sign, and why a licence is sometimes preferred where you want to keep the title clean.

Will a roof lease stop me selling or refinancing the building?

No, but it must be handled properly or it can complicate the transaction. A buyer takes the building subject to the roof lease and the income that comes with it, which is usually neutral to positive on a let investment. The risk is mishandling rather than the lease itself: a lender or valuer who does not understand the lease and the associated income can misprice the asset, and a refinance can stall if lender consent was never obtained. Disclose the lease and the income clearly, keep the consents on file, and fold it into your owner’s due diligence.

Who keeps the export income and the REGOs in a roof lease?

By default, the developer — because they own the array and carry the capex. In a standard developer-funded roof lease the on-site power is sold to the building’s occupiers at a discount, and any surplus exported to the grid, together with the REGO certificates (~£15/MWh), accrues to the developer unless you negotiate otherwise. If export revenue or the green attributes matter to you or your tenant’s net-zero reporting, raise it at heads-of-terms stage; once the lease is signed these are difficult to claw back.

Do I need a lease, or will a licence do?

It depends on who is funding the array and how much security they need. If a developer is putting six figures of their own capital on your roof, they will almost always want a lease, because it is a registrable interest that runs with the land and a funder will lend against it. A licence is lighter on your title and avoids SDLT and registration, but it is weaker security and harder to finance, so it suits owner-occupier or shorter-horizon arrangements. Watch for a document headed “licence” that actually grants exclusive possession for a long term — substance governs over the label, and it may be a lease with all the consequences that follow. Get a structured assessment of which instrument fits your building before you commit.