Issue – Solar Power Systems are Fixtures
When we think of fixtures that are included in the sale of a property, it is likely that some Brokers and Agents have not considered the application of the modern day solar power system. Similar to a hot water heater, a furnace, or other major component, the solar power system has all of the features of a fixture.
The modern day solar power system is a costly proposition. Despite this, we frequently hear the advertising mentioning “free energy” and a scenario where the user no longer pays for electricity from their utility provider. Everything sounds so appetizing. However, it is important to consider the larger picture with these systems. The most common approach is for the system to be subject to a long-term lease. Furthermore, if you seek to terminate the lease early, you will most likely be subject to penalties. The provider will charge a costly fee for removal of the system and require payment of the unpaid balance of the lease. These fees and charges can quickly add up to several thousands of dollars.
The C.A.R. Residential Purchase Agreement offers no option addressing the treatment of these increasingly popular systems. If you are not careful in addressing the system in the sale, you may find yourself in serious trouble. As is frequently the norm, the lease for the system will continue for several years after the close of escrow. If the seller agrees to sell his property and the purchase agreement documents fail to adequately address the system lease, the buyer can easily claim the sale included the system outright as an included fixture and with no lease.
Approach: Consider how this impacts our Listing Agreement, Purchase Agreement/Counter-Offer and MLS
(i) 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.
(ii) MLS: It is prudent to consider how you will address the system in the MLS so prospective buyers are aware of this issue.
(iii) Purchase & 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.
(iv) Advice From Buyer’s Agent: This situation also requires additional care by buyer’s agent, who should have their buyer 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.
Guest blog written by Robert J. Sunderland
Robert 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.