Funding a commercial energy upgrade

Why ownership is the real question

An improvement that the landlord owns is part of the building, improves the asset and stays when the tenant leaves. An improvement owned by a finance provider, or installed and retained by a tenant, may not be.

That matters in three places. At lease end, where reinstatement obligations and fixtures law decide whether equipment stays or goes. At sale, where a buyer’s solicitor asks what is encumbered. And at the next EPC assessment, where a building stripped of the plant that earned its rating is a building with a worse rating.

The routes, and what each one does to ownership

• Buy outright from cash or a general facility. Simplest, you own it, no third-party interest in the equipment.
• Asset finance or lease purchase. You end up owning it, with a security interest over it until the term completes.
• Operating lease or a service arrangement where a provider installs, owns and maintains the equipment and charges a periodic fee. Attractive on cash flow, and the equipment is not yours during the term.
• Tenant-funded under an incentive or a fit-out contribution, where who owns it is determined by the lease and by whether the items are fixtures.
• Service charge recovery, where the lease permits it, which is a recovery mechanism rather than a funding product.

None of these is wrong. They have different consequences, and the consequences show up years later rather than at signature.

Questions worth asking before signing

• Who owns the equipment during the term, and who owns it afterwards?
• What happens if the building is sold during the term? Does the obligation transfer, and on what terms?
• What happens at lease end, and does this interact with reinstatement obligations?
• Is there a security interest registered over the equipment or the company?
• What are the exit and early-settlement terms, and what do they cost?
• Who is responsible for maintenance, and what happens if the provider stops trading?

On grants and schemes

Support for commercial energy efficiency changes frequently, and eligibility is specific and time-limited. We are not going to list schemes here, because a list of schemes on a web page is wrong within months and someone will rely on it.

Ask the contractor what is currently open for your building type and your region, then check whatever you are told against the scheme rules themselves before you factor it into a decision. Treat a quote that depends on a grant as conditional until the grant is confirmed in writing.

The simple point about payback

If a measure pays back inside a few years and you have the cash, funding it is a decision about what else that cash could do rather than about whether the project works. Finance costs money, and across a short payback that cost is a meaningful proportion of the benefit.

Funding earns its place where the capital genuinely is not available, where the term is long, or where keeping the spend off the balance sheet matters for reasons beyond this project.