Triple Net Lease (NNN) tenants and Solar Energy

What Is a Triple Net Lease (NNN)?

A triple net lease (triple-net or NNN) is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities. In contrast, in standard commercial lease agreements, some or all of these payments are typically the responsibility of the landlord.

Can I add Solar to a building whose tenants have a NNN lease?

Yes and No. It depends on the specific lease terms. Who is responsible for the roof of the building? Who owns the parking lot and common areas?

Tenant is responsible for the roof 

Some NNN leases are very strict. As a property owner, you may not even be allowed to enter the building or walk onto the roof. If you have a long term NNN lease where the tenant is responsible for the roof, you will need an amendment to the lease to take back ownership of the roof. For example:

Maintenance of Premises. Lessee shall, at its sole cost and expense, maintain the Premises in good condition and repair in accordance with the terms of the Lease. However, Lessor shall be responsible for maintaining and repairing the exterior roof in accordance with the terms of the Lease. 

Property Owner is responsible for the roof 

Once a property owner has ownership rights and obligations for the roof and parking lot space, solar can be installed, with the following caveats: 

  1. Common space area. Often, common space power consumption is already part of the existing lease, so if you would like to offset those electricity costs with solar and pass them onto the tenant, no additional agreement is needed between the tenant and the property owner. 
  2. Mastered metered buildings. If your building is master metered, and tenants pay the property owner for electricity on a Ratio Utility Billing System (RUBS), then you may also start to bill tenants for solar derived electricity, without an additional agreement.
  3. Tenant has own meter. If your tenants pay for electricity directly to the utility company, then a separate agreement or an amendment to the lease can be negotiated between the tenant and the property owner for solar power generated. For example: 
Purchase and Sale of Electricity. Lessor shall install and maintain a solar array on the roof of the Premises. Lessee shall purchase from Lessor, and Lessor shall sell to Lessee, any required electric energy generated by the System. Any energy not required by Lessee shall remain the property of Lessor, and Lessor may sell the excess to a power company at its option. Lessee may purchase electric energy for the Facility from other sources only if the Lessee’s electric requirements at the Facility exceed the output of the System. There shall be no minimum supply of electricity guaranteed under this agreement.
Billing and Payment. Lessee shall not have to transfer Lessee’s electricity bill to Lessee’s name and pay the [local utility company] (hereafter, “Utility”) deposit for as long as this power agreement remains in effect. Instead, Lessor shall pay the entire Utility bill and submit an invoice monthly for reimbursement to the Lessee of the total electricity bill minus an annual discount of [% or $].
Environmental Attributes, Environmental Incentives and Tax Credits. Lessor is the owner of all Environmental Attributes and Environmental Incentives and is entitled to the benefit of all Tax Credits, and Lessee’s purchase of electricity under this agreement does not include Environmental Attributes, Environmental Incentives or the right to Tax Credits or any other attributes of ownership and operation of the System, all of which shall be retained by Lessor. Lessee shall cooperate with Lessor in obtaining, securing and transferring all Environmental Attributes and Environmental Incentives and the benefit of all Tax Credits, including by using the electric energy generated by the System in a manner necessary to qualify for such available Environmental Attributes, Environmental Incentives and Tax Credits. Lessee shall not be obligated to incur any out–of–pocket costs or expenses in connection with such actions unless reimbursed by Lessor. If any Environmental Incentives are paid directly to Lessee, Lessee shall immediately pay such amounts over to Lessor.
Term. The term of this solar panel system agreement shall coincide with the term of the Lease, unless earlier terminated as provided for in this Amendment. Any Lease extensions shall extend the terms of this Amendment.

How to convince a tenant to buy electricity from you instead of the local utility?

As mentioned above, if the tenant is already paying the property owner for power, either for common space, or because the building is master-metered, you may be able to start using E3 to bill for clean energy now, without amending lease terms.

On a NNN lease, where the tenant has their own meter with the local utility, some discount may be needed to incentivize the tenant to switch from the local utility to the property owner for electricity. In practice, E3 has found that tenants do not want to block the adoption of renewable energy. Often a credible bill from E3, and some marketing materials are all that is needed. Giving anchor tenants a 5% discount on the solar generated electricity can speed the adoption and justify the solar investment as well.  

Does Energy311 (E3) give legal advice?

No. E3 does not provide legal advice, nor are we qualified to review lease terms or help with tenant agreements and lease amendments. E3 does retain legal counsel that are experts in renewable energy and are available to discuss and review your specific lease and agreements. 

How can E3 help?

E3 is a billing service that helps commercial property owners sell clean energy to tenants at market rates. Since electricity rates are far higher than the cost of solar in many areas, E3 helps owners turn their rooftops into a new revenue stream, increasing building value by > 10%.