There are more than a million houses in the U.S. with solar panels installed on the roof and that number is increasing. Failing to address this issue properly when the house is sold can be legally difficult if not dangerous.
Some of the most common inquiries to this law firm arise from a failure to transfer ownership of installed solar panels correctly from one homeowner to the next.
We help real estate owners and buyers with this process, often looking at new approaches and possibilities. But contract forms for the sale and purchase of a house often are provided by a local board of Realtors, and today those forms do not adequately address the new and only now evolving issues arising from a sale with rooftop solar panels.
No single template for ownership
There is no one homogenized solar panel “deal” and the business terms including language addressing who owns the panels vary from one transaction type to another. In most instances these installations are governed by varying state laws. But commonly, residential solar panel leases provide language something like this:
“You agree that the solar panel system is the Company’s personal property under the Uniform Commercial Code. You understand and agree that this is a lease and not a sale agreement. The Company owns the solar panel system for all purposes.”
Obviously, selling a house when the solar panels on the roof belong to someone else raises some issues. Residential solar panel leases often provide language similar to this:
“If you sell your home you can transfer this lease and the monthly payments. The person buying your home can sign a transfer agreement assuming all of your rights and obligations under this lease by qualifying in one of three ways: (1) the home buyer has a FICO score of 650 or greater; (2) the home buyer is paying cash for your home; or (3) if the home buyer does not qualify under (1) or (2), if the home buyer qualifies for a mortgage to purchase your home and the home buyer pays us a $250 credit exception fee.
“Or, if you are moving to a new home in the same utility district, then where permitted by the local utility, the system can be moved to your new home. You will need to pay all costs associated with relocating the system…”
Timing also needs to be considered when entering into a contract to sell a house, as this sample phrase notes:
“You agree to give the Company at least 15 days but not more than 90 days prior written notice if you want someone to assume your lease obligations.”
Many, but not all, companies engaged in this business file a UCC-1 financing statement in the real estate records that puts third parties on notice to their rights in the system. That fixture filing is in most states a lien or encumbrance against the system. But in many residential transactions, title companies do not search the UCC-1 indexes because they are primarily used for business purposes, so solar leases are regularly missed.
However, the express language of solar system leases cannot be missed, as in:
“Except as set forth in this lease, you will not sublease, assign, sell, pledge or in any other way transfer your interest in the system or this lease without prior written consent.”
Explore legal options
There are ways of adding significant value to the real estate, but a solar lease, as well as any power purchase agreement, should be considered in light of federal and state laws (including tax laws).
This is not only a residential problem. This firm regularly receives inquiries arising from commercial real estate transactions that have not adequately addressed matters of solar panels, PPAs, tax credits and the like.
Selling a house with solar panels is not for the faint of heart. There can be real legal jeopardy and significant dollar liability for those failing to address the issues associated with solar panels. It may be worth your while to contact your attorney, or seek one with experience in dealing with solar assets.
Stuart Kaplow is an attorney specializing in environmental law. This post originally appeared at Green Building Law Update.