HUD Issues New Guidance on Solar and Rooftop Leases for Multifamily Housing

The U.S. Department of Housing and Urban Development (HUD) has released new guidance on solar, cell tower, and rooftop leases for HUD-assisted and HUD-insured multifamily housing projects. This guidance aims to streamline the process for property owners to enter into these commercial lease agreements while protecting HUD’s interests.

Key Points

1. Applicability: The notice applies to owners of HUD-insured or HUD-subsidized multifamily projects subject to a HUD business agreement requiring approval for encumbrances, including commercial leases.
2. Types of Leases Covered:
   • Solar leases and Power Purchase Agreements (PPAs)
   • Cell tower leases
   • Other rooftop commercial leases
   • Ground-mounted solar electric systems
3. Required Documentation: Owners must submit a package to their HUD Account Executive, including:
   • Unexecuted lease agreement
   • Estimated annual lease payments
   • Signed HUD Multifamily Rooftop Lease Owner Self-Certification
   • Unsigned HUD Multifamily Solar, Cell Tower, and Rooftop Lease Rider
   • Recent roof inspection records (for rooftop systems)
   • Mortgagee approval (for FHA-insured properties)
   • Estimated electricity cost savings (for solar systems)
4. HUD Review Process:
   • HUD will review the owner’s standing and compliance
   • Local HUD counsel will review the legal aspects of the lease
   • The Multifamily Asset Management Division Director will grant approval
5. Post-Approval Requirements:
   • Execute and submit the HUD Multifamily Solar, Cell Tower, and Rooftop Lease Rider
   • Ensure adequate property insurance coverage
   • Increase Reserve Fund for Replacements deposits if necessary
   • Perform utility consumption and emissions benchmarking (for solar on HUD-assisted projects)
   • Adjust utility allowances if applicable (for solar on HUD-assisted projects)
6. Key Considerations:
   • Roof condition and remaining useful life
   • The project’s capacity to support rooftop equipment
   • Financing plan for equipment removal/reinstallation during roof replacement
   • Insurance coverage for potential damages

Implications for Property Owners

This guidance clearly outlines a pathway for multifamily housing owners to leverage their rooftop space for additional income or energy cost savings. By outlining specific requirements and processes, HUD aims to facilitate the adoption of solar energy and other rooftop uses while safeguarding the interests of the properties, tenants, and HUD’s investments.

Property owners should review the entire notice carefully and consult with their HUD Account Executives when considering entering these lease agreements. The potential benefits of reduced energy costs and additional income should be weighed against the responsibilities and requirements outlined in the guidance.

Due to potential tax ramifications, owners of LIHTC properties that are layered with the relevant HUD programs should consult tax counsel before executing any agreements for the use of roof space.

Conclusion

HUD’s new guidance represents a significant step in supporting the adoption of clean energy technologies and maximizing the utility of multifamily housing properties. By providing a clear framework for approval and implementation, HUD enables property owners to explore innovative ways to reduce costs and generate income, ultimately contributing to the sustainability and financial health of the multifamily housing sector.