Case Study · Property / Multi-Let

Published 2026-04-01 · By Commercial Solar Finance editorial team

28-unit industrial estate, landlord-tenant PPA

A regional REIT couldn't justify capital investment on tenanted units where lease structures gave electricity benefit to occupiers. We structured a developer-funded PPA that captured both tenant savings and landlord margin without REIT capital outlay.

Units

28

PV system

1.4MWp

Tenant savings

£215k/yr

Landlord capex

£0

Situation

A regional industrial-estate REIT operating a 28-unit estate near Manchester. Total roof area ~22,000m². Tenant mix: 60% light manufacturing and engineering, 30% logistics and distribution, 10% trade counter / retail. All units on full repairing and insuring leases with electricity supplied directly to tenants under their own supply contracts. Aggregate tenant electricity spend across the estate ~£780k per year.

Constraint

The REIT had identified solar as a strategic asset uplift opportunity (improved EPC ratings, MEES compliance future-proofing, ESG positioning) but couldn't make the standard capital case work. With FRI lease structures, any electricity savings would flow to tenants, not to the REIT. Direct landlord investment in solar to sell to tenants required either an electricity supply licence (impractical) or a class exemption — and even with that, the structuring complexity put off the REIT's capital committee.

Structure

We brokered a developer-funded PPA structure with a specialist commercial PPA provider. The developer installed and owns the 1.4MWp system at no cost to the REIT. The system supplies electricity to all 28 tenants via a private wire arrangement at a tariff fixed at 12p per kWh (RPI-indexed, capped at 4% per year), against a market grid rate around 24p per kWh. The REIT receives an annual roof rental from the developer plus a margin share on PPA revenue above an agreed threshold.

How the economics flow

Developer capex (PV + private wire infrastructure)£1,050,000
Tenant aggregate annual electricity spend (pre-PPA)£780,000
Tenant aggregate annual spend post-PPA (estate average)£565,000
Tenant aggregate year-one saving£215,000
Roof rental to landlord£28,000/yr
Margin share above threshold£34,000/yr
Landlord total year-one income£62,000
Landlord capex£0
Tenant capex£0

EPC and asset value implications

The PPA installation lifted the average EPC rating across the estate from D to B, well ahead of the 2027 C threshold and within striking distance of the 2030 B threshold for new commercial tenancies. The asset valuation impact, calculated at the next rent review, contributed an estimated £1.2m of capital uplift across the estate — significantly more than the operational margin from the PPA itself.

Why this structure won

  • Capital aligned with risk appetite. The REIT didn't want to deploy capital on tenanted assets — the PPA structure put capital with a developer who wanted exactly that risk.
  • Tenants got a clean operational saving. Tenants signed direct supply contracts with the PPA provider — no involvement in capital, no operational liability, just a cheaper kWh rate.
  • Asset value uplift was the strategic prize. EPC compliance and MEES future-proofing dwarfed the operational margin in valuation terms.
  • Lease compatibility. The PPA structure didn't require lease variations — supply contracts sat alongside the FRI lease without disturbing it.

Things to negotiate carefully

  • Tenant churn risk on a 20-year PPA — what happens if a unit is vacant for 6 months?
  • Tariff escalation cap and indexation methodology — uncapped RPI is a red flag.
  • Change-of-control provisions on REIT exit or estate sale.
  • Roof access rights for repair, replacement, or building reconfiguration.
  • End-of-term position at year 20 — buyout, hand-back, or extension.

Frequently asked questions

How was solar deployed across a 28-unit industrial estate with tenanted units?
The REIT structured a developer-funded PPA where a specialist solar developer funded the 1.4MWp installation at zero capital cost to the REIT. The developer owns the solar assets and sells electricity to each industrial unit occupier directly at a rate below their grid tariff. The REIT receives a 4% uplift on its market rack rent (applied to the roof licence value). Tenants benefit from lower electricity costs; the developer earns returns from the electricity supply margin; the REIT earns passive income from the roof licence without any capital outlay.
Why couldn't the industrial estate REIT simply fund the solar itself?
REITs face specific constraints that make direct solar investment structurally challenging: (1) REITs are required to distribute 90% of rental income to shareholders, limiting reinvestment capital; (2) solar assets on tenanted buildings generate electricity income rather than rental income, which must be carefully structured to preserve REIT tax status; (3) the tenant lease structures gave occupiers the right to their own electricity supply arrangements, making a landlord-imposed electricity supply legally complex. The developer-PPA structure neatly bypassed all three constraints — the REIT receives a roof licence fee (rental income), not electricity income.
What is the landlord benefit from a developer-funded PPA on an industrial estate?
The REIT's benefits are: (1) a 4% annual roof licence fee on the capital value of the roof area used — approximately £86,000/year across the 1.4MWp installation; (2) EPC improvements across the estate, reducing MEES compliance risk and supporting higher market rents on lease renewals; (3) a marketing advantage with occupiers who increasingly require renewable energy evidence in their own sustainability reporting; and (4) zero capital commitment and zero operational responsibility. The developer maintains all equipment under the PPA, removing maintenance obligations from the REIT's estate management.
How are tenant electricity savings structured under the industrial estate PPA?
Each of the 28 units receives electricity from the solar developer at a contracted rate set at a fixed discount to Ofgem-published business rates (typically 10–15% below the reference tariff). The rate adjusts annually in line with the reference tariff, maintaining the percentage discount. Tenants are not obligated to take all solar electricity — they remain connected to the grid for supplementary supply above solar generation levels. Metering is handled by the developer's sub-metering infrastructure. Tenants' aggregate saving across the estate is approximately £215,000/year.

Multi-let or tenanted property?

PPA structures can navigate landlord-tenant splits where direct capital won't work. The contract terms determine whether you keep value or lose it.

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