Many homeowners are jumping on solar as a way to save money while being mindful of the environment. Solar power can greatly reduce a homeowner’s monthly electric bill, and federal and state benefits.
When a homeowner is looking to power their home with solar, their choices are to either buy the panels or lease either the equipment or the power (PPA) for a discount on their electric bill.
But what happens when homeowners choose to sell choose to sell a home with solar panels?
The outcome depends on whether the solar panels were purchased outright or leased (PPA) from a provider for a monthly fee. That choice will change the way the individual’s home is bought and sold in the future.
Rented Solar Panels May Complicate Transactions
When a homeowner rents solar power, either by leasing the equipment, or the power through a Purchase Power Agreement (PPA), they must contract with a third party for a set period of time, usually 20 years. These deals are sweetened by offering free maintenance for the length of the contract and many companies claim that leasing is cheaper than purchasing.
A 20 year contract causes problems, though, if the owner decides to move before the lease is up or refinance their home. Why? Because the equipment is owned by the solar company and not the homeowner. This notifies the mortgage company and title company are notified through UCC1 filings that a 3rd party owns the system and can complicate the selling process.
If the homeowner plans to sell, they have two options:
- Buy the panels and leave them on the home for the new owner and negotiate a price for the panels.
- Transfer the lease to new homeowner for the remainder of the contract.
- Transferring the lease to the new buyer can be seen as a simpler process, but problems can arise.
The biggest issue is that the buyer will assume the terms of the contract which may not be beneficial to the buyer.
The buyer simply may not want solar panels on their house, because they find them visually unappealing or they just aren’t interested. More likely, the buyer may want to purchase them on their own so they can get the benefits of ownership.
This may not break the deal, but it can lead to negotiation between the buyer and seller.
The transaction may be even more difficult during the first five years the panels are on a house, because the solar company doesn’t have to sell the panels to the homeowner during that time and sometimes adds all the revenue of the remaining years of the contract to the purchase price.
Even if the buyer wants solar, they may not want it at the same terms that the previous owner was offered by the company. There should be a negotiation between the buyer and seller to find the best course of action.
If the buyer agrees to the terms of the lease, the leasing company must approve the transfer. While most buyers will qualify for the contract if they also qualify for a mortgage loan, it’s another complicated step for the buyer.
Leased solar panels, of course, have little to no up-front cost, and the company maintains the system so there is no maintenance cost to the lessee. While this may seem appealing to homeowners interested in solar, being tied into a 20 year contract may change their mind. If given the opportunity to lease or buy, homeowners should consider buying so they can receive 100% of the benefits without the problems associated with leasing.
Leased Solar Panels Do Not Add Value
Having solar panels on a home often adds value to the house, but if a homeowner leases them, more often than they don’t add additional value and may actually adversely affect the value. Because the solar panels are rented, they could make it more difficult to sell the home or refinance. Therefore appraisers do not take it into consideration when assessing the value.
100% of the incentives go to the owner of the solar panels, some offer metering that offsets the electric bill, some offer a small return on your investment and others have tax incentives. The return on investment depends on the state, but the benefits offered aren’t mutually exclusive meaning homeowners can receive metering and tax incentives as well as the revenue. In Massachusetts, for example, solar panel owners receive net metering, tax credits (both state and federal) and SREC (solar renewable energy certificate) income. When a homeowner leases the panels these benefits go to the solar company with less of a reward for homeowners, including net metering, tax credits (30% Federal) and even the revenue that can result in a decent return on investment.
Solar panels have a 20-25 year warranty, and the inverters have a 10-25 year warranty, and often times there is little maintenance required. Homeowners can purchase solar panels with no money down in many states, and may be able to pay off the cost of the panels completely in 5-10 years. When a homeowner buys the panels they get all possible benefits.
If your client is thinking of buying a home with rented solar panels, it is important that they know what they are getting into. Jeff Cohen, Business Development Manager for Endless Energy, has years of experience as an impartial solar coach. He says, “It can hurt the buyer if they do not understand terms of the lease. It is imperative that the real estate lawyer on both sides review the contract”.
These contracts can be quite complex. If the real estate lawyer does not have experience with the leasing contract, the client should consult with someone who does. That way the lawyers and real estate agents can better represent the clients and both parties can make an informed decision.
Purchased Solar Panels Have A Larger Cost, but Simplify Transaction
While buying and selling a home with a rented solar system can be complicated and costly, the process is usually a lot simpler if the panels were previously purchased. This type of transaction is often a win-win for both parties.
When the homeowner owns the solar panels, they add significant value because the homeowner can transfer the benefits to the next owner. The homeowner also receives all of the tax credits, net metering, and other incentives put in place by federal and state governments as long as they own the panels.