Thanks to government tax incentives, leased solar panels are being installed on homes at a rapid pace. This is great for our energy environment, but presents increased real estate E&O claims risks for real estate agents and sellers alike. To reduce your risk of a real estate lawsuit when selling a home with leased solar panels, you need to understand where the risk lies during the transaction.
Challenges Solar Panels Present During a Sale
While the solar panel industry reports that solar panels add $15,000 on average to home value, they can still end up being a deterrent for some buyers. Concerns over the length of the lease (up to twenty years in some cases) and the chance that the existing panels will end up becoming outdated or obsolete technology may arise. Others buyers don’t want to take on the lease payment or do not like the idea of having to go through another credit application process. Buyers also have concerns over long-term solar panel maintenance expenses or roof repair complications. With this in mind, you will need to advise your sellers on reviewing and disclosing all terms and fees associated with the transfer of the solar panel lease agreement. A copy of the lease agreement will need to be provided to prospective buyers as well.
Prepare Your Sellers
To avoid a real estate lawsuit, you and your sellers will need to understand what options are available when selling their home with leased solar panels. Any questions you ask or comments you make about your seller’s options should be in writing, such as an email, so that a cohesive paper trail can be established regarding the leased solar panels. Likewise, the detailed documentation of disclosures to buyers needs to be kept.
You may need to jump in and assist your sellers in understanding what happens to the solar lease during a real estate transaction, so that those details can be accurately disclosed to the buyers. There are typically two main options to take when selling a home with leased solar panels:
The seller buys out the remainder of the lease: This means they would then own the solar panels as part of the house and potential buyers would not have to take on the lease contract or buy it out themselves as a condition of the sale. This simplifies the sale. The downside is the cost to the seller could be high, more than they want to or could afford up front. Some buyouts can cost as much as $20,000.
Transfer the lease to the new owners: This will require the agreement of the buyers, the sellers, and the company leasing the solar panels.
Solar panel leases vary. Some companies make it easy for their customers to buyout the lease. Others charge a fee for prematurely buying out the lease. Additionally, due to government credits, some leases are tied to the property tax payments and must be dealt with through the city or county offices. Before you list the home, have your sellers evaluate the options with their solar panel lease to minimize the hassle of transfer or buyout to them or potential buyers. After the seller has all of the facts, you can work with them to decide whether or not to buyout the panels or offer to transfer the lease to the new owners. Regardless of the decision your seller makes, it must be mentioned in the listing agreement, listing marketing (including MLS), and disclosures.
Understanding PACE and Hero
When working with a listing that has leased solar panels, you may run into PACE (Property Assessed Clean Energy legislation) and HERO. These government-backed programs allow property owners to finance green energy and energy efficient upgrades. Upon the sale of a property with leased solar panels that have been financed through PACE or HERO, the assessment on the property will likely transfer from the buyer to the seller. However, each financing contact needs to be treated as unique and must be carefully read and fully understood by you and your client—do not assume anything. If you have questions or concerns, have the CRES ClaimPrevent® Legal Advisory Services review the solar panel lease contract with you prior to closing.
A Word About Secured vs. Unsecured Loans on Solar Panels
If your sellers ‘purchased’ their solar panels as opposed to leasing them, they will need to consider the type of financing they used when they bought the panels. If it is an unsecured loan, your sellers can sell their property with the solar panels and then continue to pay the loan off. If it is a secured loan, as in a home equity line of credit or home equity loan, your sellers will have the remaining balance paid off through proceeds of the sale through escrow.
CRES ClaimPrevent® Legal Advisory Services can provide the right legal advice to ensure that you are not missing any details when handling a transaction with leased solar panels. Robert J. Sutherland, a real estate lawyer in California, provided his best advice when considering how leased solar panels impact your listing agreement, purchase agreement, counter offers, and MLS:
Listing Agreement: The listing agent should confirm the existence of any solar equipment with the seller and inquire if the equipment is owned free and clear or subject to a lease. The listing agreement should confirm this status.
MLS: It is prudent to consider how you will address the system in the MLS so prospective buyers are aware of this issue.
Purchase and Sale Documents: The Purchase Agreement, or more likely a Counter-Offer, needs to include appropriate language regarding the existence of a solar power lease, transfer fees if any, lease assumption by the buyer and release of the seller from further liability to the system provider after the close of escrow.
Advice to the Buyer’s Agent: This situation also requires additional care by buyer’s agent, who should have their buyers review the lease terms and conditions to their complete satisfaction during their due diligence period. This review should include inquiry into the status and reputation of the system provider, review of the warranty and all associated costs.1
Have you sold a home with leased solar panels? How did you and your seller handle the transfer with the buyer? Tell us your story in the comments below!
1Robert J. Sunderland is the Managing Partner in the nine attorney law firm of Sunderland | McCutchan, LLP. His practice emphasizes real estate transactions and the defense of Real Estate Licensees throughout the State of California. Robert J. Sunderland | www.sunmclaw.com
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.
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