By David Bronston
In New York City, the Bloomberg administration recognizes that renewable energy will play a significant role in our energy supply with solar having the greatest potential to generate electricity in the five boroughs.
Tax credits and other incentives have been established to make installation of solar photovoltaic systems on buildings more economically attractive.
This includes a Solar Electric Generating System Property Tax Abatement Program offering abatement up to $62,500 per year for four years or the building’s annual tax liability (whichever is less). Decreasing equipment cost is another encouragement factor.
For solar service providers (SSP), locating the equipment on existing building structures is attractive because there is no need to acquire or lease undeveloped real estate. For property owners, rent can be an incentive where power generated will go directly back to the grid. In another prevalent model, building owners and tenants participate in electricity savings pursuant to a “Power Purchase Agreement” with SSPs.
This article will highlight questions and issues every owner contemplating a rooftop solar system should consider.
Sunlight.
Obviously, there needs to be sufficient sunlight. The panels may have to be situated in a certain direction with respect to the sun because there has to be adequate and unobstructed access to daylight. SSPs will require a negative covenant from property owners not to take any actions that would obstruct sunlight. Property owners should negotiate that they are not responsible for anything that they have no control over, including what happens on adjacent properties.
Some SSPs will require owners to give notice of any situations on neighboring properties that might lead to shadows or other sunlight interference and require owners to reasonably intervene and cooperate on the SSPs’ behalf.
Physical and Contractual Constraints.
Will the roof of the building support the weight? What is the impact on the building’s roof warranty? Does the warranty require work to be done only by certain contractors? Do any building tenants have any rooftop rights? Are there existing rooftop tenants such as telecommunications companies and what are their contractual rights? Where will inverter equipment go that is needed to transfer power back to the grid? Where will conduits go for the cabling? Will there be any interference to rooftop access or other equipment? Who has or will have access to the rooftop? Property owners must analyze all existing leases, licenses or other access agreements.
Plans and Scope of Installation.
It is of critical importance to owners that they have full rights of review and approval over installation and alterations of all equipment installed at the property. All improvements, all necessary equipment and all locations must be clearly set out in the plans and all plans must be subject to owner’s approval, including all cable and conduit runs. Owners should draft into their agreements appropriate protection from mechanics liens and appropriate controls over subcontractors.
Permits and Approvals.
All requirements for zoning or other government authorizations must be the SSP’s responsibility (with owner’s reasonable cooperation). Owners should put an outside date by which service SSPs must have obtained all approvals and when rent and term should thereby kick in. SSPs must comply with all applicable laws and building and electric codes. In New York City, this would include proof of Con Ed interconnection coordination, all Department of Buildings (“DOB”) construction and electrical permits (ALT 2) and electrical installation only by a NYC licensed master electrician. DOB will also require fire department access, ballast and anchorage details as well as reinforcement details if necessary to sustain additional horizontal or vertical loads. In New York City, an application for a DOB permit must also show compliance with the Zoning Resolution
No Representations by Owner.
Generally solar license or lease agreements should require the SSP to accept the property “as is” without any work by owner. SSPs should do the necessary diligence on the building to assure it is sufficient for a solar installation.
Relocation.This is a difficult issue to negotiate given SSPs’ need for continuous operation, exposure and significant space taken up by a typical installation. However, owners may need flexibility in terms of further development and changes to a property and basic repairs to the roof during the term. Who absorbs the costs of relocation is an issue of heavy negotiation. Any relocation must be reasonably satisfactory for the continuing operation while also allowing owners to make necessary roof repairs or adjustments.
Rights on Termination.It is of critical importance to owners that the SSP is contractually obligated to remove all equipment at the end of the term safely and without damage to the property. The property should be restored to its original condition, except for normal wear and tear. Alternatively, property owners and SSPs may negotiate a purchase option.
Utility Issues. SSPs must interface with the utility and must ensure that owners do not incur any responsibility or obligations that would subject them to utility type regulation. There will be utility interconnection issues. Also, SSPs should provide for a backup power plan in case the solar system fails.
Miscellaneous. There should be deadlines for starting and completing construction. There may be a need for a temporary construction laydown area. Issues need to be addressed regarding subordination, non-disturbance and attornment and relations of various lending and financing entities.
There should be provisions regarding condemnation and casualty occurrences. Standard environmental and hazardous materials provisions are necessary as well as standard default, insurance and indemnification provisions. Provisions regarding tax allocations must be included.
Conclusion. The potential for solar energy in New York City is large and growing but so far still largely untapped. With subsidies and other incentives, like tax credits and abatements and Solar Renewable Energy Certificates or Credits, the buildout will come. Building owners need to be ready and educated to enter into fair and comprehensive agreements that allow for these new installations and a new energy infrastructure at their properties.
David Bronston is a partner of Cozen O’Connor.
