Leasing a roof for a photovoltaic installation for 20+ years – key contractual provisions

Who Owns the Power Plant: Part of the Building, or a Separate Asset

The first question that the contract must resolve is who legally owns the power plant, and the answer is not obvious. An integral part of an asset is everything that belongs to it by its nature and cannot be separated from it without depreciating the asset (Section 505 of the Civil Code). A rooftop photovoltaic power plant may or may not meet this criterion.

The Supreme Court addressed precisely this dispute: buyers of a property demanded the removal of a photovoltaic power plant that had been placed on the roof by the former owner and was not the subject of the purchase agreement. The court concluded that the assessment of whether the power plant is a separate asset or part of the building depends on how it is attached to the building and whether its dismantling would depreciate the building—i.e., whether the roof could serve its purpose equally well or worse after dismantling; it is also necessary to examine how the power plant is connected to the electricity grid and whether at least part of the generated electricity directly serves the building.

These conclusions follow from the judgment of the Supreme Court, file no. 22 Cdo 1501/2020, dated 24 November 2020, available at rozhodnuti.nsoud.cz. According to the court, this is not an issue that can be resolved by a generally applicable rule—it always depends on the circumstances of the specific installation, which is why the lower courts had to return to establishing the facts of the case, which they had neglected in the first round.

The most important sentence of the judgment is unpleasant for the investor. The court explicitly confirmed its established case law that an integral part of an asset transfers to the acquirer regardless of whether it was explicitly mentioned in the transfer of ownership agreement, and it is irrelevant whether the acquirer realized that they were acquiring the integral part along with the asset. Therefore, if the power plant is deemed to be part of the building, it automatically belongs to the owner of the building, even if someone else paid for and built it and the lease agreement stated the opposite.

This risk dictates what a roof lease agreement must contain first and foremost: a precise description of the technical mounting solution, an explicit agreement that the power plant remains the property of the lessee as a separate movable asset separable without depreciating the roof, and, if possible, a solution that practically enables this separation. The more clearly the structure is designed to be separable, the better it will stand up for the investor even before a court, which will assess the circumstances individually based on the criteria from the aforementioned judgment.

In practice, this means specific choices during the design of the installation, although even an intervention in the roofing itself does not decide the matter on its own. An anchoring system that holds the panels on ballast weights or on screwed brackets without interfering with the load-bearing structure of the roof supports the argument of separability. Conversely, an intervention in the roofing or connection to the load-bearing structure weakens this argument, as it increases the risk that dismantling will damage the roof—however, the decisive factor is not the existence of the anchoring itself, but the specific impact of dismantling on the functional, aesthetic, or other value of the building, which the court assesses individually.

The investor should obtain a written confirmation from the installation supplier regarding the anchoring method and photo documentation before the installation is completed, which can be presented as evidence in the event of a dispute.

The second element that the court examines according to the cited judgment is the method of connection to the electricity grid and who the electricity serves. If the photovoltaic system is designed so that all generated electricity goes into the public grid and the building does not draw from it directly, this is one of the circumstances supporting the conclusion that the equipment is independent. Conversely, if the power plant also supplies the building's own consumption, this may support the conclusion that it is an integral part of it—however, neither circumstance decides the matter on its own; the decisive factor is the overall assessment under Section 505 of the Civil Code.

The contract should describe this technical arrangement specifically, including a reference to the project documentation, to prevent later disputes over interpretation.

Transfer of Lease to a New Owner and the Risk of Termination

If the owner of an asset changes, the rights and obligations under the lease transfer to the new owner (Section 2221 of the Civil Code). Therefore, if the owner sells the building, the roof lease does not terminate by the sale itself, and the new owner enters into it by operation of law, regardless of whether they agree to it.

However, this protection has a major exception that investors in a twenty-year investment often forget. If the new owner had no reasonable ground to doubt that they were buying an asset that was not leased, they have the right to terminate the lease within three months after they learned or must have learned that the asset is leased and who the lessee is (Section 2222 of the Civil Code). The lessee's rights against the original lessor are not affected by this, but that does not help the investor if they want to continue operating the power plant on the roof.

However, the party terminating the lease for this reason must provide the other party with reasonable compensation (Section 2223 of the Civil Code). The law itself therefore grants the investor a right to compensation for this specific case of termination—the main question that the contract should additionally address is how high a compensation the parties consider reasonable and how such an amount will be calculated so that there is no need for a dispute over its amount.

For a twenty-year investment horizon, this risk is fundamental. If the buyer of the building did not reasonably know about the roof lease, for example, because it was not obvious from an inspection of the property or registered in the land registry, they can terminate the lease with a three-month notice period, and the investor will lose the right to use the roof before recovering the installation costs, albeit with a claim to compensation.

Conversely, if the lease is obvious, or if the buyer learned about it otherwise, this termination option is eliminated. However, according to the law, the mere visibility of panels on the roof does not automatically mean that the buyer also knew who their owner was and under what conditions they were placed there—therefore, it is recommended that the building owner explicitly and in writing inform any serious prospective buyer of the sale about the existence of the lease, rather than relying on the buyer noticing it themselves during an inspection.

The most reliable way to mitigate this risk is to ensure that every future buyer knows about the lease, rather than just assuming they do. This means registration in the Land Registry, or alternatively, the establishment of an easement—i.e., an in rem right that burdens the owner of the land or building with the obligation to tolerate something for the benefit of another, and which, unlike a mere lease, is effective against any future owner regardless of their knowledge (Section 1257 of the Civil Code). The choice between a registered lease and an easement depends on the specific situation and how strong a security the investment requires.

How precisely to set up this protection in the contract depends on the value of the investment and how liquid the market for the given property is—which is why the Czech legal team at ARROWS law firm always assesses this choice based on the specific project, rather than using a single template clause.

However, registration in the Land Registry also has practical limits that are good to know in advance. If the leased asset is registered in a public register, the lease right is also registered in it if proposed by the owner of the asset, or if proposed by the lessee with the owner's consent (Section 2203 of the Civil Code)—the law therefore does not require any special agreement beyond this consent. An easement, on the other hand, arises as an independent in rem right, and its establishment requires its own contract and registration in the Land Registry.

The choice between the two instruments should also take into account how easily the right can be cancelled or modified in the future if the terms of cooperation change, and what costs both parties will bear for the registration and its potential deletion. For the lease of other parts of a property, a similar logic of lessee protection applies, which is discussed in the text on office and commercial space modifications by the lessee.

What Else the Contract Must Contain for Twenty Years in Advance

In addition to ownership and protection against termination by a new owner, the contract needs to resolve a number of practical issues that will inevitably arise over twenty years of operation. Even the most carefully drafted contract will not save an investment if both parties do not clarify at the outset who will bear what risk over twenty years. These include technological modifications to the roof—i.e., who pays for the repair of the roofing if it is damaged by the installation or, conversely, its dismantling, and how to handle situations where the building owner needs to carry out their own construction work on the roof, such as replacing the roofing halfway through the lease term, when the panels must be temporarily removed and reinstalled.

The lifespan of photovoltaic panels is now commonly stated to be twenty-five years or more, so a twenty-year contract is, from a technology perspective, more of a minimum than a safe margin.

The second group of questions concerns compensation for early termination beyond the statutory compensation. Beyond the statutory regulation, the contract should precisely define the economic settlement in the event that the building owner terminates the lease before the investor recovers their costs. In the case of termination by a new owner, the law itself grants reasonable compensation, but the contractual arrangement can determine the method of its calculation in advance, or adjust compensation for situations to which the statutory compensation does not apply—thereby preventing a future dispute over the amount, which would otherwise have to be resolved by a court and could last longer than the remaining duration of the originally agreed lease term.

The third question is the extension option. For a twenty-year investment, it is worth agreeing on the lessee's right to extend the lease for another several years, as the actual lifespan of photovoltaic panels today often exceeds the lifespan of the contract itself. Without an option, the functional technology remains on the roof without a legal title for further operation, and the investor is forced to negotiate a continuation from an obviously weaker position, as the only available alternative—dismantling functional equipment—is costly and time-consuming.

The fourth question is insurance and liability for damage. The contract should clearly divide who insures the power plant, who is liable for damage caused by its installation or operation to the other party's property, and how damage caused by the building owner to the lessee's equipment is resolved, for example during roof repairs. It is also particularly advisable to address situations where the building is damaged by a natural disaster, such as a fire or windstorm, and to determine whose insurance covers the restoration of the roof and whose covers the restoration of the power plant.

The fifth question, which the parties often address only after signing, is cooperation during the transfer of building ownership: who informs the new owner about the existence of the lease and how documentation regarding the technical condition of the power plant is handed over.

Mistakes That Property Owners and Investors Make

The most common mistake on the investor's side is a contract that does not resolve the ownership of the power plant clearly and leaves the question open to interpretation. Without a clear technical solution and contractual declaration, the investor may find after years of operation that they must litigate the ownership of their equipment, typically at the moment when it matters most—i.e., during the sale of the building or the foreclosure of the owner's property.

The second mistake is a lease without registration in the Land Registry or without an easement for a twenty-year investment. The building owner may have no reason to sell today, but in ten years the situation may change, and without registration, the investor has no certainty that the new owner will not terminate the lease—even though they would be entitled to statutory compensation in such a case.

The third mistake is omitting the extension option. Investors agree on a lease exactly for the depreciation period of the investment and then find that the contract gives them no right to continue, even though the technology will last for years. The building owner can then condition the extension on a significantly higher rent, knowing that dismantling a functional power plant would cost the investor more than what they would save on rent.

The fourth mistake, this time on the property owner's side, is underestimating the impact on a future sale. The owner signs a twenty-year roof lease without considering how it will actually affect the value and marketability of the building in the eyes of a future buyer, only to find during negotiations with the buyer that the long-term commitment on the roof complicates the transaction, prolongs due diligence, or reduces the offered price.

The fifth mistake is a contract that does not address the change of use of the building during the lease. If the owner later changes the purpose of the property or carries out construction work affecting the roof, the contract must determine how such a situation is coordinated with the existing power plant. Without this provision, the coordination of construction work and the operation of the photovoltaic system is only resolved at the moment of conflict, when it is too late to find a mutually acceptable solution, and one party will feel that the other is acting contrary to the spirit of the contract, even if they have not formally breached it. The implications of changing the use of a property without construction work are discussed in the text on change of use without construction modifications.

Where the Roof Lease for Photovoltaics Breaks Down

Final Summary

The article showed that a long-term roof lease for photovoltaics rests on two questions that are rarely addressed in a standard lease agreement: who actually owns the power plant and what happens to the lease if the owner sells the building. The ownership regime of the power plant depends on the factual circumstances of the specific installation, which the court assesses individually; conversely, the fate of the lease upon a change of owner is determined directly by law, and the factual circumstances mainly decide whether the new owner could terminate the lease.

Two steps are crucial for company management. The first is technical and contractual security ensuring that the power plant remains a separate asset of the investor, not part of the building, supported by project documentation of the anchoring. The second is the registration of the lease in the Land Registry or the establishment of an easement, so that the twenty-year investment survives even a change of property owner, regardless of whether the future buyer actively searched for it themselves.

Delaying this setup does not pay off, as both risks will only fully manifest years later when it is too late to change anything: either in a dispute over the ownership of the power plant, or when the new building owner sends a termination notice. Investors and property owners who have addressed these risks in advance enter into a twenty-year relationship with no open questions on either side and without the risk of having to litigate in ten years over what they should have resolved in a single clause at the time of signing.

The Czech legal team at ARROWS law firm will set up the photovoltaic lease agreement to clearly address the ownership of the power plant, secure protection against termination upon a change of building owner, and prepare the entire contractual framework for the twenty-year investment horizon. Write to us at consultation@arws.cz or explore our real estate law service.