Published On: August 5th, 2014 / Categories: commercial leases, Permits, solar leases /

Residential solar electric leasesSolar electric leases are becoming increasingly popular with California homeowners. From 2010-2013, residential solar electric production in California nearly tripled, from around 20 megawatts to almost 60 megawatts. At the same time, the percentage of electricity generated under solar leases (residential solar electric systems leased from solar electric lease firms, not owned by the homeowner), increased from around one-fifth to over two-thirds. Put another way, solar electric power generated by California homeowners who bought solar electric systems during this time stayed fairly level, while solar electric power generated under solar leases increased nearly tenfold.

Besides touting the environmental benefits of solar energy in their marketing materials, the firms that dominate the solar lease industry play up the economic advantages of leasing solar electric systems over buying them—e.g., no up-front capital expenses, no maintenance costs, and predictable monthly electric bills. But like any product that seems too good to be true, there are significant, less obvious issues that homeowners need to take into consideration before entering into a solar lease.

For example, homeowners are likely to be required to grant access rights to the property in order to maintain and repair the solar electric system.   While a homeowner may conclude that it is worthwhile to allow the solar lease firm access to the property for these purposes, it should be noted that these rights could be treated as an easement or right of way affecting legal title to the property. Such “clouds on title” could be treated as events of default by the mortgage lender, potentially triggering foreclosure, and could complicate the completion of a future sale of the property.

In addition, owners of condominium units should be aware that there can be difficulties obtaining the required approvals from their homeowners’ association to install a leased solar system. Because these approvals are generally a precondition for a solar lease firm approving the installation of a solar electric system, the homeowner may end up incurring unforeseen homeowners’ association approval costs prior to the actual installation of the solar electric system.

Finally, it should be noted that solar leases tend to restrict what a homeowner can do with the lease if the property is sold before the end of the term (usually 15 to 20 years or longer, due to the financial model used for solar leases). The lease may provide that the buyer of the property may take over the remaining term of the lease only if the buyer meets the solar lease firm’s credit requirements. More significantly, if the buyer does not meet those requirements, the homeowner may be required to buy out the remaining term of the lease at the cost of the present value of the future payments remaining under the lease. While this cost could be added to the sales price of the property, this could also result in the failure of the sale of the property.

In view of these complications, homeowners would be well advised to take a closer look at their future plans for their property, as well as carefully examining the provisions of the solar lease, in considering whether to enter into a solar lease. If these matters still remain unclear, we recommend seeking the assistance of counsel in evaluating these options.

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