Solar Panels – Questions to Ask Before Contract

ORLANDO, Fla. – If a seller has solar panels installed on their property’s roof, it’s worth investigating whether the way those solar panels are financed or leased could impact a future transaction. Many sellers aren’t aware of these issues, so if you ask the right questions, you can set them on the path to success.

1. Do you own the solar panels or are they leased?
2. If you own them, are they financed?
3. If they’re financed, do you plan to pay the debt off before going under contract (or before closing), or will you ask a buyer to assume the debt at closing? Note: Lenders may not allow a buyer to assume the debt, and there could be application and transfer fees.
4. If they’re leased, do you plan to end the lease early or attempt to assign the lease to a buyer? Note: Attempting to assign a lease could raise the same issues as attempting to assign a debt.

Here’s a closer look at these categories. This is a very broad-brush overview, so sellers should conduct their own research into the specific terms they agreed to and how their lender or lessor may help or hinder them in reaching their goal of selling the property.

Owned outright without financing

This is the simplest case. Solar panels will likely be a fixture that is part of the real property the buyer is purchasing unless the seller specifically excludes them in the contract.

Owned outright with financing

Although many sellers have heard that solar panel financing can be assumed by a future buyer, that doesn’t mean it will be allowed for a specific transaction. If it is allowed, then the seller will need to figure out what costs and steps are required to make that assignment and assumption happen, as well as what obstacles may get in the way of a successful handoff.

If a buyer is getting a loan, will the lender allow them to assume the solar panel debt? This is such a common issue that the drafters of the Property Assessed Clean Energy (PACE) Disclosure added this bolded warning:

“In the event Buyer is obtaining a mortgage loan to purchase the Property, be advised that MOST MORTGAGE LENDERS WILL REQUIRE THE SATISFACTION OR RELEASE OF THE PACE FINANCING FROM THE PROPERTY.”

If the buyer is willing and able to assume the debt at closing, then the parties should have an attorney prepare some language to add to the contract that spells out specifics. What tasks does each side need to complete? What deadlines do the parties want to implement? What if there’s a delay or denial? A well-drafted clause should answer these questions and more.

Leased

Like financed solar panels, the main question is whether the seller is going to terminate the lease or attempt to assign it to the buyer before closing. If they want to assign it at closing, they should have an attorney add a clause to the contract that answers the questions about tasks, deadlines, and what happens if there’s a delay or denial.

These leases often run for many years. And they may not offer an easy or affordable way to terminate early. That means sometimes a lessee may have to choose between paying the solar panels off or seeking a buyer who can take an assignment. That said, the terms of a lease can vary from one to another, so the seller should research their specific circumstances and come up with a sound plan before going under contract.

Joel Maxson is Associate General Counsel for Florida Realtors
Note: Information deemed accurate on date of publication

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