Don’t Get Burned By Solar Panels (Or Other Leased Items)

More and more homes are running off the power of the sun these days. Renewable energy has become a trending topic and solar panels are beginning to become prevalent in the state of Florida due to positive environmental impacts and the potential to reduce large A/C bills. Selling a house with solar panels comes with unique challenges, depending on whether the solar panel system is leased or purchased outright. Propane tanks are another common item that may seem to convey with the property, but may be leased.

When a solar panel system is leased (usually over an average term of 20 years), the property owner signs a lease agreement requiring the owner to pay a monthly payment to the solar panel company. In turn, the solar panel company will file a Uniform Commercial Code Financing Statement (“UCC1”), and will often record it in the public records as well, which secures the lease agreement and protects the solar panel company’s interest in the solar panels, in the event the owner defaults on payment. When recorded, a UCC1 Financing Statement will be disclosed in a title search and appear on a title commitment. A recorded UCC1 Financing Statement is required to be paid off and satisfied by the property owner at or prior to closing on the sale of the real estate.

So what happens when the property owner goes to sell a few years into the lease? As is the response to most legal questions . . . it depends. Most solar panel leases provide the property owner with several options when selling the home that will satisfy the title requirement mentioned above, which include: 1) Assignment: the prospective home buyer will assume the property owner’s rights and continue to make the monthly lease payments until the end of the lease term; 2) Prepayment: the property owner will prepay the entire lease in full and the prospective home buyer will be bound by the other non-monetary lease terms and assume the owner’s obligations (but not be required to make any monthly payments); or 3) Total buyout: the property owner can purchase the system in full. Depending on how far along the property owners are in the lease, the prepayment or buyout option can be very costly. For example, a recent transaction involved a solar panel total buyout of $32,000, and a prepayment option of $16,000.

If you are working with a seller who has solar panels on the home, here are some tips to ensure a successful sale of the property:

  • Ask the sellers if the solar panels are leased or owned;
  • If the solar panels are leased, do the sellers have a copy of that lease;
  • Extensively review the solar panel lease with the sellers to see what option the seller prefers in regards to assignment, prepayment, or total buyout;
  • If the sellers have a preferable option, make sure it is included as part of the AS-IS or Standard Contract for Purchase and indicated in the additional terms;
    Ex. If the seller requires that a buyer assume the lease and its monthly payments, it should be written into the additional terms that the contract is contingent upon the buyer assuming the solar panel lease, including the monthly payments and the lessee’s obligations.
  • Once a prospective buyer comes along, disclose, disclose, disclose!

If you are working with a buyer that is interested in purchasing a home with solar panels or any other leased items, or a seller that is interested in selling a home with solar panels or any other leased items, we encourage you to contact your local real estate attorney for advice to ensure a smooth transaction.
Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Mallory Moretti, ESQ.  mmoretti@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

www.berlinpatten.com

 

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