Selling with Solar Panel Leases and PACE Liens

“Going green” has always been a goal of California homeowners whether to reduce utility bills or be environmentally friendly.

“Going green” has always been a goal of California homeowners whether to reduce utility bills or be environmentally friendly. Particularly, solar panels have become increasingly popular among homeowners in achieving such goals. The government also encourages homeowners to “go green” by providing various financial programs and subsidies.

California has had the PACE (Property Assessed Clean Energy) program since 2001 to help homeowners finance conservation improvements by securing a lien on their property. Private solar companies offer lease deals to homeowners to install solar panels with little upfront cost. While solar panels can help lower utility cost and add significant value to a property, leased solar panels and PACE liens can actually be a liability to sellers and buyers.

PACE Programs and Disclosure

This government funded program allows eligible homeowners to install solar panels or other energy conservation improvements to their property. The amount spent on the solar panels will be assessed against the property as a lien (the PACE Lien) and then the homeowner will pay off the PACE lien on their property tax bill for the next couple of years.

The PACE lien has priority over all junior liens. Problems can arise when the property is listed for sale, and the buyer is applying for a purchase loan, but only the purchase price is taken into account and not the hidden PACE lien.

RPA paragraph 8B(5) requires sellers to disclose to a buyer whether any items in paragraph 8B of the contract are subject to a lien or encumbrance. Paragraph 8B includes all fixtures and various other features of the property including solar power systems and any other items included in the sale. Sellers are also required to provide all written materials, such as leases and warranties to the buyer which will contain information on the fixtures. Furthermore, the PACE lien may affect the value or desirability of the property for the buyer, and failure of the seller to disclose the lien could make the seller liable for any damages that the buyer suffers as the result of the nondisclosure.

However, the PACE lien will likely appear on the preliminary title, so buyers and their lenders should be aware of the lien prior to close of escrow, and most lenders will simply not lend when there is a priority lien on the property.

Solar Leases and Disclosure

Another way for a homeowner to finance their solar addition is through private solar leases. A growing number of solar companies will offer 15-20 year leases at no upfront cost to the homeowners and the solar companies will maintain the solar panel as part of the lease. Unlike the PACE Liens, solar leases are similar to automobile leases, and the leased solar panels are considered real property fixtures owned by the leasing company.

Again, when dealing with transactions involving solar panel leases, pursuant to paragraph 8B(2) all solar power systems are treated as personal property and included in the sale except as otherwise specified. Further, paragraph 8B(5) requires a seller to disclose if any of the items in paragraph 8B are leased or liened. The review of the lease documents and the buyer’s ability to qualify for any lease is a contingency of the RPA. Furthermore, question C2 of the Seller Property Questionnaire requires the seller to disclose if the solar panels on the property are leased.

Failure of the seller to disclose the lease could render the seller liable for any damages that the buyer suffers as a result of such failure. However, in the case of a solar lease, buyers and their agents could also have constructive notice of the lien’s existence by plain sight of the panels. Furthermore, the preliminary title report should disclose to the buyer the presence of a solar lease.

For more information, see CAR Publication “PACE Programs and Solar Leases.”

 

Posted on July 5, 2019 at 7:20 pm
Intero | Category: Pivot

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