Consider 5 Items When Negotiating Rooftop Leases

Solar panel and cell tower leases can increase cash flow and meet sustainability goals.

For LIHTC project owners and developers, rooftop commercial leases may offer an opportunity to generate additional revenue and align a site with broader sustainability goals. These types of leases involve rooftop solar systems, cell towers, and other similar equipment. Rooftop leases offer owners a chance to align financial objectives with sustainability and innovation. With careful planning, rooftop leases can transform underutilized spaces into valuable assets and access new revenue streams while contributing to affordable housing’s resilience and environmental goals.

Recently, HUD issued a notice for HUD-assisted or HUD-insured residential properties at which an on-site solar system, cell tower, or other rooftop equipment would be installed. The notice signals that HUD is seeking to clear up and centralize procedures for applications and approvals for such leases. With regard to state housing finance agencies, there hasn’t been specific guidance issued on rooftop leases for LIHTC sites.

Several states, however, have addressed the integration of renewable energy systems at LIHTC sites. For example, the California Tax Credit Allocation Committee’s regulations state that projects must include photovoltaic (PV) systems to offset tenant loads, unless infeasible. And the New York State Homes and Community Renewal agency emphasizes energy efficiency and sustainability in its LIHTC program. Their qualified allocation plan awards points to projects that include renewable energy systems.

While the focus in these examples is on system ownership rather than rooftop leasing, they highlight the importance of renewable energy at LIHTC sites and, as a result, may indicate a trend for older LIHTC sites to consider rooftop leases to increase cash flow and help achieve broader sustainability goals. If you’re considering a rooftop lease, you should reach out directly to your state’s housing finance agency to inquire whether there are specific policies or requirements related to rooftop leases.

Using HUD’s notice as a jumping off point, we’ll highlight similar concerns you should have when negotiating a commercial rooftop lease as an owner with an interest in protecting your building and prioritizing tenant welfare.

Item #1: Location and Installation of Equipment

Standard rooftop lease agreements begin by broadly describing the location of the provider’s equipment. This general language doesn’t go far enough to protect owners. So, when negotiating the Location and Installation clause, you should:

Make all installations subject to your prior approval. First, as the owner, you should make sure that the location, type, weight, and size of all equipment installed at any time during the lease term must be approved by you prior to their installation.

Guard against damage. In HUD’s notice, as a condition of approval, owners have to show adequate insurance throughout the lease term and during installation or removal. This insurance protects both the rooftop equipment and property in case of damage.

Similarly, it’s important for providers to show you adequate insurance to protect your building. The installation of equipment, no matter where they’re located on the roof, could damage the roof or other structural elements of the building. To protect your building, at a minimum, make sure that the provider has adequate insurance to cover the risk in the event damage occurs.

Get detailed list of equipment. Today, the size and weight of the antenna(s) may be satisfactory. Tomorrow, however, a company could install new equipment that may unsafely increase the load on the roof. This may not be what you intended when you signed the lease. Larger equipment could be unsightly and block site line views.

Item #2: Maintaining and Repairing Equipment

Although a company should have the right to maintain and repair its equipment at a site, an owner should have the right to approve the replacement or upgrading of any of the company’s equipment in the event the equipment is not “substantially equivalent to” the equipment being replaced or upgraded.

Make provider maintain equipment, roof, building integrity. In HUD’s rooftop lease rider, there are provisions making explicit who is to perform all routine maintenance and emergency repairs of its solar, cell tower, and other rooftop equipment, except in the case of damage resulting from an owner’s negligent or wrongful acts.

And with respect to the installation area, the provider should agree to maintain the waterproof integrity of the building and the roof. In addition, a provider should not make any improvements or alterations to the site except as specifically authorized and approved by you.

Item #3: Wireless Company’s Entry onto Site

Standard rooftop leases give the company “24/7” access to their equipment. Although a rooftop equipment provider may have a legitimate interest in having round-the-clock access to its equipment, there are valid security reasons why you’d want to control such access.

Require notice. It’s appropriate to require the company to give you 24 hours’ advance notice of its need to access the roof, except in the case of emergencies, in which instance, the company should call the building manager to give notice of its intent to enter the site.

Item #4: Permits, Approvals, Authorizations

Standard rooftop leases state that before doing any work, the company will obtain any and all governmental permits or approvals that may be required and provide you with copies of them. HUD’s lease rider requires the company to agree that it will obtain all applicable governmental approvals, including approval related to building permits, licenses, utility interconnection, building codes and fire safety, and others required by law

Get expert’s safety report, too. While obtaining governmental permits and approvals is a basic requirement for rooftop deal, a provider company should also be able to deliver to you, at its sole expense, a report from a licensed engineering firm stating that their plans don’t pose any safety concerns to the building and its residents. This report should attest that the site can safely accommodate the company’s equipment.

A safety and engineering report can be used not only to satisfy you that the equipment is safe, but also to show the residents in your building that you’ve performed the proper due diligence to ensure that the building is safe for all.

Make company comply with report recommendations. In the event such reports call for modifications to the site to safely accommodate the company’s equipment, the company should be responsible for making such modifications at its sole expense before any equipment is installed.

Get right to hire independent reviewer. In addition, you should have the right to hire an independent engineering consulting firm specializing in the construction and maintenance of rooftop equipment to review: (1) the engineering report and safety report; and (2) the company’s work plan, as it may be revised from time to time, at the company’s sole cost and expense.

Item #5: Relocation of Equipment

As the owner, you should at any time be able to require a company to remove or modify its equipment or relocate it to another area designated by you, if the equipment:

• Causes physical damage to the structural integrity of the building;
• Causes any interference; or
• Creates or results in any noise, odor, or nuisance tending to disturb any resident of the building or adjacent areas.

Spell out shut-off/restart terms. You should request that the company agree that it must immediately shut off the equipment upon notification of any damage or interference, and may restart modified or relocated equipment to test for any damage or interference only with your permission, which should not be unreasonably withheld.

Agree to compromise. On the other hand, the company will argue that it intends to invest a substantial amount of money to install its equipment. For example, relocation of its cell towers or antennas not only can be a huge expense, but may also render the site far less effective or even useless for its intended purpose. In these cases, a compromise may be to:

• Allow the wireless company to terminate the lease if it has reasonable grounds to do so;
• Provide alternate space for the equipment in the building; or
• Consider sharing the cost of removal and/or relocation of the equipment.