Solar projects continue to grow in popularity. Be it for existing buildings or an innovative feature of a proposed development, the use of photovoltaic panels for a sustainable energy source are growing in number, and size.

The draw to solar is due in part to a variety of attractive financing options in Massachusetts. Solar projects may be eligible for varying tax incentives and deductions through the Department of Revenue and the Department of Energy Resources, or grants through the state’s Commonwealth Solar program. As developers, owners and tenants increasingly consider the benefit of installing photovoltaic panels on the buildings they own, operate and lease, understanding the details of the project will be vital to avoid unanticipated problems down the road.

Location, Location, Location

With financing in place and a reliable solar company involved, project proponents are tasked with identifying an installation site and ensuring the equipment is mounted without issue.

Smart owners and tenants will perform a careful review of their installation site to ensure that photovoltaic panels are compatible with the characteristics of the project location. Depending on whether the property is owned or leased, different site-specific issues will need to be resolved.

If the installation site is on leased property, the leasehold agreement may require consent by the landlord prior to installation of photovoltaic panels. Tenants should identify whether landlord involvement is necessary from the onset of the project to avoid the embarrassing (and potentially expensive) situation of having to negotiate out of a lease default.

Other issues related to the installation of panels requiring careful consideration include insurance coverage, maintenance, and yield-up obligations. Solar projects most often call for installation of panels on the roof, calling for a careful review of the relevant maintenance obligations.

Often, a separate license or lease agreement will be necessary in instances where the installation site falls outside the leased premises, or the solar company will operate the equipment on the property of the “end user.”

For a separate license or lease agreement, the term, maintenance, access, insurance and other obligations should be carefully reviewed to ensure they are compatible with any applicable grant agreement, underlying lease and power purchase agreement (discussed below). Timing of installation should also be addressed, in addition to ensuring the term of the agreement corresponds with the term of any grant and power purchase agreement.

Tenants are also wise to understand any yield-up or related removal obligations applicable to panels installed on the property, as well as the associated cost.

Property owners may expect a less complicated list of issues for solar projects, and for the mortgage-free owner, they may be correct. However, property owners must still remember the ever-present mortgagee. Installation of photovoltaic panels on the property may require consent by the lender, which can cause project delays. If the installation site houses tenants, the property owner will benefit from a review of the leases for any notice, access or other relevant obligations.

Timely notice and consent, where applicable, will avoid a firestorm of lender or tenant-related issues.

Understand the Power Purchase Agreement

Most solar projects deal with a company that provides both the solar generating equipment and the power to an “end user,” while retaining ownership of the equipment itself.

For the end user to receive and use the energy produced by the solar equipment, the parties will enter into a power purchase agreement to purchase the energy at a discounted rate, as well as a license agreement to allow the solar company to place the equipment on the property. Given that solar equipment providers most likely will benefit from state and/or federal tax incentives, this arrangement can mean a win-win for everyone involved.

But again, the devil is in the details.

Agreements with an outside energy provider should be carefully reviewed. Provisions dealing with the right to refuse energy, or a “curtailment right” (rather than receiving and paying for all energy produced, even when not needed for general operations), fixed rates, ability to maintain or move the energy-producing equipment, the term of the agreement and any unexpected insurance requirements are just a few clauses worth careful consideration.

These are typically long-term agreements, so the property owner must consider its long-range plans for the property prior to signing a deal with a solar company.

The Grant Agreement

Finally, any grant agreement at play should be read with care. Grant agreements are entered into by and between the party purchasing the solar equipment and a state agency providing some or all of purchasing funds.

These agreements often impose restrictions that may conflict with an existing lease, power purchase agreement, or lender obligations, and warrant careful review. For example, grant agreements may require that equipment remain in use for a fixed term, or restrict their relocation. If a tenant or owner has plans to relocate or expand operations, these actions may trigger fines or the unpleasant circumstance of having to repay some or all grant proceeds.

Solar projects are an exciting prospect, but not without issues. Owners, tenants and developers are wise to understand the details of the equipment, the installation site, and the parties involved to manage the possible risks and liabilities and ensure that their sustainable efforts allow for a rewarding, stress-free project.

C. Forbes Sargent III and Ani E. Ajemian are attorneys at Sherin and Lodgen LLP in Boston. They recently assisted Boston College High School in the preparation, review and finalization of a power purchase agreement and lease for one of the largest solar arrays in Massachusetts.