Law Times

Law Times • January 17, 2011 An online resource 1.800.263.3269 Focus On REAL ESTATE LAW Green energy leases tricky for owners Solar power involves 20-year commitment for rooftop developments BY DARYL-LYNN CARLSON For Law Times creasingly fi nding themselves involved in facilitating clients' green eff orts. Yet those who haven't had an oppor- A tunity to work on what's known as a green lease project could be perplexed by some of the language required in comparison to a standard commercial document. It's only a matter of time before green leases become common. Th ey're used to accommodate green energy projects ran- ging from solar panels on the rooftops of commercial buildings to windmills that generate power on land leased from farmers. Dennis Daoust of Daoust Vukovich LLP, who has worked on a number of green leases recently, acknowledges they're far diff erent from standard deals. "Not all the building owners or lawyers have gone through the process of devel- oping green leases but when they do, it adds a whole level of negotiation and concerns that you need to sort out to make the deal stick," he says. "It makes leases a lot more diffi cult if it's a green lease, and for lawyers who are dealing with regular leases, they could have some problems with the nuances." He notes that both the Real Property Association of Canada and the Build- ing Owners and Managers Association of Canada have developed model green leases to assist parties interested in de- veloping alternative energy projects. Th e model agreements are tremendous- ly helpful as a reference when drafting a lease for a client, Daoust says. He expects more clients will approach lawyers following the introduction of Ontario's feed-in tariff program that s a result of Ontario's bid to reduce carbon emissions and fi nd alterna- tive energy sources, lawyers are in- provides a guaranteed pricing structure for renewable electricity production. "Under the FIT program, if you have solar power, you can sell to the Ontar- io Power Authority for more money," Daoust says. "As a result, anybody who has a roof of substantial size is being ap- proached by solar power companies. For my clients, I have developed a lease that protects the interest of the landlord for the roof, and they now have rent that can add to the value of the building." A contract under the program runs for 20 years and is therefore a signifi cant investment. "Th e thing that causes a lot of building owners to hesitate is that when you put solar power panels on your roof, you could be damaging your roof or damaging the structure of the building," Daoust says. "So the owner must get an engineering assessment to make sure there is no damage." He expects green leases will explode as Ontario's cap-and-trade system for greenhouse gas emissions gets under- way. Under the Western Climate Ini- tiative accord that includes seven U.S. states along with British Columbia, Manitoba, Ontario, and Quebec, the government could impose an emission limit on each commercial building. If the building generates more greenhouse gases than its emission credits allow it to, it would have to pay a penalty. To avoid a penalty, building owners could purchase carbon credits. Alterna- tively, if the building isn't emitting as much as it's allowed to, it could sell the credits on a commodities-like ex- change. "Th e implementation date of the cap-and-trade system is not too far off ," Daoust says. "Th is will all have a big im- pact on the building's market value." Michael Brooks and Lloyd Cornett of Aird & Berlis LLP agree there has covenant. "A solar lease is like any other lease, and there are a lot of developers who don't have a good covenant," Cor- nett points out. With the 20-year rooftop leases, there's no ability for landlords to ter- minate them earlier unless they arrange to pay compensation. Th ere also need to be provisions in the lease contract for roof or structural repairs in the event the building ex- periences any problems. Th at requires tailoring each lease to the property, Cornett says. As well, when a building owner de- 'It's kind of the Wild West out there at the moment with the rush to secure rooftop facilities,' says Lloyd Cornett. been a growing interest in green energy leases by many commercial clients. In fact, Cornett says there have been far more applications by developers for solar facilities than anticipated, resulting in a backlog at the Ontario Power Au- thority. "It's kind of the Wild West out there at the moment with the rush to secure rooftop facilities," says Cornett. "Th e application process takes a long time." He points out that under the feed- in tariff program, the 20-year lease re- quirement can be daunting for building owners even though many of them have applied for approval. "Landlords should have concerns with green leases as with any other lease," he says. As a result, all commercial landlords and building owners should ensure they review the strength of the solar energy tenant's Get more online lawtimesnews.com canadianlawyermag.com Fresh Canadian legal news and analysis every week. Canadian Lawyer | Law Times | 4Students | InHouse | Legal Feeds Visit Us Online_Odd-5X.indd 1 www.lawtimesnews.com 1/12/11 12:06:06 PM velops a solar rooftop and signs a power purchase agreement with the power au- thority, all future environmental credits go to the Ontario government, he notes. "So as a landlord, you won't necessarily want to give those all away, so you may want to develop the project yourself." In a bulletin Cornett authored for his fi rm, he writes: "Th e building owner must also have control over the rooftop. Th at is, the rooftop must not be subject to existing leases to tenants or other le- gal restrictions which may prevent the landlord from being able to grant exclu- sive rights to the operator." As well, because of the duration of any solar lease, the owner must also carefully consider any future plans for the building before entering into a con- tractual agreement. Brooks, meanwhile, has worked for clients on wind power leases involving turbines often located on land owned by farmers. He says the issues are dif- ferent and signifi cantly less complex. "For the most part, there can be some objections regarding the look of the turbines by neighbours," he notes, add- ing that the landowner's commitment to the turbine supplier isn't locked in in the same way. LT PAGE 9

• Cover
• Duelling Lawyers
• Feminized Justice
• Focus On Real Estate Law