What You Should Know About Solar Leases

Dated: 06/27/2018

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America’s love for renewable energy has led to the expansion of solar energy. It’s become so popular, that in May 2018, the California Energy Commission set a precedent for California as the first in the nation to adopt standards requiring solar systems for new homes. The 2019 Building Energy Efficiency Standards will take effect in 2020. This requirement may raise monthly mortgage payments by about $40, but the homes will save around $80 on heating and air conditioning costs each month.

When a homeowner enters into a solar energy lease – which typically carries a 15 to 20 year secured payment obligation – the lien securing payment on the lease is recorded at the County Recorder’s office and reported on the Preliminary Title Report ordered through escrow. At the time of sale of the home, the lease must be assigned to the buyer, or bought out by the seller prior to the close of escrow.

There are times when such a situation complicates, or puts an end to, a possible sale. For one thing, the solar energy producer must approve the new owner before closing escrow. Some buyers cannot afford a solar panel lease payment. For another, not every potential buyer is a believer in solar energy, wants to undertake the financial obligation, and/or will qualify, credit-wise, to do so – and many sellers balk at paying off the lease contract or paying a hefty penalty for breaching the lease. This is the main problem with solar panel leases; buyers and sellers have a hard time agreeing on what to do with the lease.

Ideally, at some point, solar lease disclosures will be mandatory on the part of a seller – or solar panels may be designed to move with the current homeowner. Until then, the escrow company will notify the buyers’ agent immediately when it’s discovered that a solar lease is in place so that the agent can work with their clients to negotiate a satisfactory resolution to save the transaction and/or avoid a closing delay. Solar panel leases have saved people a lot of money, but sometimes get in the way of a transaction that would have otherwise gone through.

Meanwhile, savvy real estate professionals can do several things to assist in the successful sale of a home with a solar lease in place:

  • Call solar leasing companies to discuss the options available to both the sellers and buyers.

  • Encourage the sellers to pay off the solar lease, just as they might pay off the cost of any other upgrade, before or as part of any sale transaction.

  • Become knowledgeable about the facts and benefits of renewable energy. Be able to document for a potential buyer how much the homeowner paid for power before and after installation and how they might benefit from assuming the current solar panels and lease.

  • Know how the lease may affect the buyer is they were to take on the lease from the seller

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Kurt Galitski DRE 01348644