Let Investment Property: Solar for Commercial Property

Single-let FRI investment property is the textbook split-incentive asset. You own the building and the roof; the tenant occupies under a full repairing and insuring lease, pays the electricity bill, and — under FRI — usually pays the business rates too. Put conventional landlord-funded solar on that roof and the tenant captures most of the savings while your capital carries the cost and the risk. The panels are the easy part. The hard part is engineering the lease structure so the party that pays benefits, and so the asset value lands with you. That is the question this page answers.

Why the lease structure matters more than the panels here

On a single-let FRI investment, the meter sits with the tenant. Electricity flows from the array, behind the meter, into the tenant’s supply — so the tenant’s bill falls and your bill does not, because under FRI you have no operational bill to fall. That is the classic split incentive: the cost and the benefit sit on opposite sides of the demise.

There are three ways through it on this asset type, and the right one depends on a single decision: are you holding the building or are you trading it.

• Sell the roof (airspace/roof lease). A specialist developer funds, owns and operates the array; you grant a long roof lease and take ground rent plus, often, a discounted-power arrangement passed to the tenant. Zero capex, zero technical risk to you — but you are granting a registrable legal interest. (Route C.)
• Landlord-to-tenant PPA. You fund and own the array and sell the generated power to your tenant behind the meter at a tariff below grid. You keep the asset and the income; the tenant gets cheaper, greener power without spending a penny. (Route B.)
• Green-lease addendum. A documentary layer over either of the above — it secures roof-access and alterations consent, allocates the EPC uplift, and shares cost and benefit on agreed terms.

We model all three against your actual hold intent, lease length, tenant covenant and roof condition before recommending one. The framework sits in our guide to the split incentive solved.

The prime “sell the roof” route — zero capex, lease-light to you

For a landlord who wants the EPC uplift and the tenant goodwill but not the capital outlay or the asset-management burden, the roof lease is usually the cleanest fit on a single-let FRI building. A renewable developer takes a long lease of the roof or airspace (typically 20–30 years), funds and builds the array, owns it, insures it, maintains it and takes the generation economics. You receive a ground rent and a discounted-power offer to pass to your tenant. The phrase the market uses — “no sun, no power” — captures the risk transfer: the developer carries the performance risk, not you.

What you are granting, though, is a real property interest, and that has consequences a licence does not. A roof lease is registrable at the Land Registry. It can attract SDLT. It will need the consent of your mortgagee — your lender’s charge sits over the whole title, including the airspace — and your buildings insurer must be notified, particularly where battery storage is co-located. The lease term must align with the tenant’s occupational lease and with the roof’s remaining membrane life; granting a 25-year roof lease over a roof with 10 years of covering left is a problem you do not want to discover later. We run that diligence with you in owners’ due diligence, and we compare the routes head-to-head in roof lease vs PPA vs licence.

The landlord-tenant PPA — if you are retaining the asset

If the building is a hold, not a trade, owning the array yourself usually beats giving the roof away. Under a landlord-to-tenant power purchase agreement, you fund and install the system and sell the power it generates to your sitting tenant, behind the meter, at a fixed unit rate set below what they pay the grid. The tenant signs up because their energy cost falls from day one with no capital commitment; you sign up because you keep an income-producing asset on your own balance sheet and the EPC uplift accrues to your building.

The economics turn on self-consumption. A single-let industrial or trade-counter tenant running daytime load can self-consume 50–70% of generation on a single shift, rising to 60–80% with a modest battery — and every kilowatt-hour self-consumed displaces grid power at roughly 24–28p (ex VAT/CCL) rather than earning the far lower SEG export rate of around 12–16p. That spread is the whole return. Note the tax position: a landlord buying solar to lease the power cannot use full expensing (assets bought to lease are excluded), so the relief comes from the £1m Annual Investment Allowance plus the 6% writing-down allowance on the special-rate pool, not the 50% first-year allowance. The mechanics — private wire, sleeving, metering — are in landlord-tenant PPA and private wire.

Green-lease addendum — consent and a fair split

Whichever route you take, the occupational lease needs to permit it. Roof works on let space touch the tenant’s alterations clause and their quiet enjoyment; access for installation and maintenance has to be reserved. A green-lease addendum — drawn from the Better Buildings Partnership Green Lease Toolkit — handles this. It grants roof access, secures alterations consent, allocates the EPC and the maintenance obligation, and, crucially, caps any tenant contribution at the tenant’s own demonstrable savings so the arrangement is genuinely value-positive for them. It also fixes who keeps the SEG export income and the REGOs (renewable certificates worth roughly £15/MWh as a separate, tradable stream). Get this paper right at the outset and the deal holds through a rent review or a lease assignment.

Sizing and economics: 150–800 kW

Single-let investment buildings — distribution sheds, trade counters, light-industrial units, standalone retail and office investments — typically carry a useful roof for a 150–800 kW array, a project value of roughly £120,000–£700,000 (ex VAT; commercial install has been zero-rated since April 2022), generating around 142,000–760,000 kWh a year at a UK yield of about 950 kWh/kWp.

Blended payback across this asset type lands around 6.5 years, pulled shorter (4–5 years) on high-load daytime tenants with strong self-consumption, and pushed longer where load is light and surplus is exported. Two non-energy levers help the case on a let investment: rooftop solar and any co-located battery are 100% exempt from business rates to 31 March 2035 in England (worth roughly £3,000–£8,000 a year on a 250 kW array, though under FRI the rates payer is usually your tenant), and a commercial EPC typically lifts by one to three bands — we never promise a specific jump — which directly protects lettability. See cost for the full build-up.

Compliance and the owner-transaction layer

Two regimes frame every decision here.

MEES. Since 1 April 2023 it has been unlawful to let a commercial property in England and Wales below EPC E — including to sitting tenants (gov.uk MEES guidance). That is the binding law today. Separately, the Government’s interim response of 18 June 2026 proposes an EPC B target by 2031 for privately rented non-domestic buildings over 1,000 m², only where cost-effective and subject to secondary legislation — a proposal, not law. The earlier “EPC C by 2027” was scrapped, and “EPC B by 2030” was never law. Penalties for letting below the standard run to 10% of rateable value (capped £50,000) under three months and 20% (capped £150,000) at three months or more, plus a public breach register. The seven-year payback test and the registered-exemption route still apply.

The roof lease as a legal interest. A roof or airspace lease is registrable, can attract SDLT, and needs mortgagee and insurer consent — it is not a licence and not a PPA. On a let investment you also have a transaction layer no bill-led installer touches: dilapidations and reversion (who owns the array at lease end), the s.198 fixtures election when you later sell the building, rent-review interaction (landlord improvement disregards), and a structural roof-loading survey to BS EN 1991 before any panels go on. We cover the lot in owners’ due diligence.

Worked example (illustrative)

The following is illustrative — your numbers depend on tariff, tenant load, roof and grid connection.

A single-let 6,000 m² distribution unit in the Midlands, let on a 15-year FRI lease with 11 years unexpired to a national logistics tenant running a two-shift operation. EPC currently D. The owner is a long-hold investor with the building charged to a clearing bank.

• System: 450 kW rooftop array, owner-funded, structured as a landlord-tenant PPA.
• Capital cost: ~£330,000 ex VAT.
• Generation: ~427,000 kWh/yr; tenant self-consumes ~70% (daytime two-shift load) at a PPA tariff of 21p vs their ~26p grid rate.
• Owner income: ~£62,000/yr of power sold to the tenant, plus a small SEG export top-up on the ~30% surplus at ~13p; relief via AIA on the special-rate pool.
• Tenant benefit: ~£15,000/yr saved versus grid, secured by a green-lease addendum capping their position at their own savings.
• EPC: modelled uplift from D toward B (one to two bands — not guaranteed).
• Payback to owner: ~6 years on the power-sale income, with the lender consent, SDLT-free PPA structure (no roof lease granted) and roof-loading survey cleared up front.

Had the same owner been a trader rather than a holder, we would have modelled the sell-the-roof route instead — zero capex, ground rent, and the EPC uplift delivered before sale — and walked the SDLT, registration and mortgagee-consent diligence before committing.

Common questions

Should I sell the roof or fund the solar myself?

It comes down to hold intent. If you are holding the asset, fund it and run a landlord-tenant PPA — you keep an income-producing asset and the EPC uplift, and you avoid granting a registrable interest. If you are trading the building or want zero capex and zero technical risk, the roof lease (“sell the roof”) delivers the EPC uplift and tenant goodwill while a developer carries the cost and performance risk — but it is a registrable legal interest with SDLT, Land Registry and mortgagee-consent consequences. We model both against your numbers in roof lease vs PPA vs licence.

Will my tenant benefit instead of me under FRI?

Not if the deal is structured. Under a plain landlord-funded install the tenant captures the savings while your capital carries the cost — the classic split incentive. A landlord-to-tenant PPA fixes that: you sell the generated power to the tenant below grid, so the tenant saves and you earn an income on your own asset. A green-lease addendum then caps the tenant’s contribution at their own demonstrable savings, keeping it value-positive for both sides. The full framework is in the split incentive solved.

Do I need my lender’s consent?

For a roof or airspace lease, yes — almost always. The lease is a registrable interest granted over land your mortgagee’s charge already covers, so granting it without consent typically breaches the facility. The insurer must also be notified, especially with co-located battery storage. A behind-the-meter PPA where you retain ownership and grant no property interest is usually lighter-touch, but the loan documents should still be checked. We run mortgagee and insurer consent, the BS EN 1991 roof-loading survey and the s.198 fixtures position before any commitment — see owners’ due diligence, or start a quote and we will scope it against your specific lease and lender.