What to Know About Leased Solar Panels When Buying a House

As solar panels become more common, homes for sale increasingly feature pre-existing solar energy systems. For prospective homebuyers, understanding how leased systems impact a property purchase is important. Leased solar panels mean the homeowner does not own the equipment but benefits from the electricity generated. This arrangement introduces specific financial and logistical considerations that differ from homes with owned solar systems.

Understanding Leased Solar Panel Systems

A leased solar panel system involves a third-party solar provider installing and owning the panels on a homeowner’s property. The homeowner pays a monthly fee to use the panels and the electricity they produce. This arrangement differs from an owned system, where the homeowner purchases the panels outright. The solar company remains the system owner, responsible for installation, maintenance, and repairs throughout the lease term.

Homeowners often choose to lease solar panels due to the absence of significant upfront costs, which can range from $15,000 to over $30,000 for a purchased system. This zero-down payment option makes solar energy more accessible by removing the initial financial barrier. While a leased system can provide immediate savings on electricity bills, ranging from 10% to 30%, the long-term financial benefits are less compared to owning a system, as the homeowner does not receive tax credits or other incentives.

Impact on the Home Buying Transaction

The presence of a leased solar panel system influences various aspects of a home buying transaction. Appraisers do not include the value of leased solar panels in the home’s appraised value because the homeowner does not own the equipment. Freddie Mac’s guidelines specify that only owned solar panels contribute to a home’s appraised value, as leased panels can be repossessed. This means that while solar panels can increase a home’s value when owned, a leased system offers no added property value.

Financing and mortgage approval are also affected, as lenders consider the solar lease a financial obligation, similar to other debts. This can impact a buyer’s debt-to-income (DTI) ratio, potentially affecting mortgage eligibility. Buyers must qualify with the solar company to assume the lease, which often involves a credit check; many companies require a credit score of 680 or higher. If the buyer does not qualify or is unwilling to assume the lease, the seller may need to pay off the remaining lease balance, which can be substantial and sometimes handled at closing.

The lease transfer process from seller to buyer involves several steps:
The seller contacts the solar company to initiate the transfer and connects the buyer with a service transfer specialist.
The buyer completes a transfer of ownership form and submits a credit application to the solar company.
Upon credit approval, the lease agreement officially transfers to the new homeowner, who agrees to take on the remaining payments.
This process requires coordination among the seller, buyer, solar company, and their real estate agents and lenders, potentially extending the closing period.

Reviewing the Lease Agreement

Reviewing the solar lease agreement is important for prospective homebuyers. The lease term and its remaining duration are factors, as solar leases span 10 to 25 years. Understanding how much time is left on the contract provides clarity on the long-term financial commitment. The monthly payment structure varies; some leases have fixed payments, while others include an “escalator clause” that increases payments by a fixed percentage annually, commonly between 1% to 5%.

Performance guarantees specify a certain level of electricity production from the panels. Understanding what happens if the system falls short of this guarantee is important. The agreement outlines maintenance and repair responsibilities.

Early termination clauses and penalties detail the costs or conditions for ending the lease prematurely. These fees can be substantial, sometimes requiring payment of the lease’s remaining term or a significant penalty. Some agreements offer an early exit option allowing the purchase of the panels at a predetermined price. Removal clauses dictate what happens at the end of the lease term, including whether removal is an option and who bears the cost.

Life with Leased Solar Panels

Once the home purchase is complete and the solar lease transferred, the new homeowner navigates life with leased solar panels. The primary financial aspect is balancing the monthly lease payment with potential electricity bill savings. The lease payment is a fixed monthly fee, designed to be lower than the pre-solar electricity bill, resulting in immediate savings on energy costs. These savings can range from 10% to 30% of the previous utility bill, though the total monthly cost will be the lease payment plus any remaining utility bill for grid electricity.

Homeowners can monitor their system’s performance through software or online portals provided by the solar company, offering real-time insights into energy production. This allows them to ensure the system is operating as expected and track their energy consumption and savings.

Selling a home with a leased solar system can introduce complexities. When the current buyer sells the house later, a new lease transfer process will likely be required, potentially narrowing the pool of interested buyers or complicating the sale if buyers are hesitant to assume a long-term contract.

Homeowner’s insurance considerations are important. Generally, if solar panels are leased, the homeowner’s insurance policy is not responsible for covering them because the solar company retains ownership. The leasing company typically holds an insurance policy for the panels. Homeowners should verify this with their insurer and the solar company to understand who is responsible for damage to the panels or if the panels cause damage to the roof or other property.