Contract renegotiations put solar deals at risk
Housing associations are facing the prospect of eleventh-hour renegotiations over photovoltaic panel ‘rent-a-roof’ deals worth hundreds of millions of pounds, following guidance published this week.
The Council of Mortgage Lenders has set out the minimum requirements that social landlords should meet to obtain bank consent for the deals, under which PV providers offer landlords free PV in exchange for the feed-in tariff.
Social landlords have just five months left to complete their deals before the FIT - paid as an incentive to generators of renewable electricity - is significantly reduced by the government. Missing the deadline would render many agreements unviable.
Lawyers are now warning that many agreements will need to be amended in the wake of the CML guidance. It advises that most banks will require the power to terminate contracts with PV providers ‘without compensation and without liability for any costs of removal’ in the event of a default by an association.
It states this right will arise if a bank cannot sell the properties as a result of the panels and/or the rent-a-roof contract.
Richard Brooks, partner at Anthony Collins Solicitors, which is acting on deals covering 160,000 properties, said: ‘Housing providers will be forced to insert terms reflecting the [CML] standards into deals with PV companies or try to negotiate with their lenders to derogate from the standards, causing delay everyone could well do without.’
Despite many deals being agreed in principle, none have yet been completed because lenders’ consent has not been obtained. This is due to banks’ concerns that complicated rent-a-roof contracts could have a negative impact on the value of the properties held as security against loans.
According to Richard Petty, director at Jones Lang Lasalle, the stucture of many of these deals could devalue bank security by between 2.5 per cent and 15 per cent in the event of a default. This is because of complications relating to the contracts with third parties involved.
Mr Petty said banks were doing everything they could to get the deals across the line but argued associations should have approached their lenders a lot sooner.
‘Banks are being asked at the eleventh hour to deal with very complicated problems,’ he said. ‘Every one of these deals is different and the process is different depending on the contract.
‘If you enter these deals with green blinkers on, you are missing half the picture - that is, what does it mean for the value of the banks’ security? It is possible to reach a position where the agreement does not affect value and which funders will approve.’
A spokesperson for the National Housing Federation said: ‘Associations have offered various mitigation measures in the extremely unlikely event of default.
‘The longer it takes for a reasonable solution to be accepted, the less likely it is that schemes which cut tenants’ fuel bills will appear before next year’s deadline.’