Rent Your Roof for Solar, Has Anyone Tried This Before ??

21 Replies

Has anyone rented their roof for additional monthly income as it relates to solar energy?

This opportunity has presented itself to me and I'm doing a bit of research. I can rent my roof to a company for solar power. If the roof needs repairs they would handle that process and maintain the solar equipment. Lease terms are usually 20 years or longer, they would cut me a check for renting my roof. My tenants would keep paying the regular utility bills each month while I make money off the roof. I could offer my tenants a credit towards monthly utility bills based on how much income I make from the solar company.

Hi @Kenny Lincoln . We've been considering a similar play here in Georgia, so I'd love to compare notes! I'm eager to get a better understanding of the terms of the arrangement, and particularly the specific documents used to secure and document the transaction.

I'm reaching out to you via BP message now...

I would love to hear specific details because this doesn't make sense. You're in DC so I have to assume there are larger buildings that could provide a lot more space for solar. Solar typically takes 15+ years just to break even so how are they producing enough income to pay you for renting the roof?

@Nathan G. average “break even” for solar where OP lives in DC is 5 years on a cash purchase in 2018: https://solarpowerrocks.com/washington-dc/ but payback period is irrelevant to the OP since there is no initial investment to be recouped on OP’s end, as this would be a leased system (a third party owns and operates the system, the upfront cost to OP would be $0). The third party leasing companies are able to leverage economies of scale/ bulk buying power on equipment / vertical integration to drive costs down such that they can install solar cheaply enough that they will be making money on the system very quickly if not immediately (by selling the tax credits to banks/investors/tax equity funds and by selling energy back to the grid at a premium) . They then pass the savings on to the owner of the roof that they're “renting”. 

Originally posted by @Steve K. :

@Nathan G. average “break even” for solar where OP lives in DC is 5 years on a cash purchase in 2018: https://solarpowerrocks.com/washington-dc/ but payback period is irrelevant to the OP since there is no initial investment to be recouped on OP’s end, as this would be a leased system (a third party owns and operates the system, the upfront cost to OP would be $0). The third party leasing companies are able to leverage economies of scale/ bulk buying power on equipment / vertical integration to drive costs down such that they can install solar cheaply enough that they will be making money on the system very quickly if not immediately (by selling the tax credits to banks/investors/tax equity funds and by selling energy back to the grid at a premium) . They then pass the savings on to the owner of the roof that they're “renting”. 

@Steve K - I'm awaiting further information on this opportunity and your reply makes a lot of sense to me. I assume this is how the 3rd party is making money off this opportunity. The only difference is that the actual electric bill would remain the same and not be reduced. I was told the payment for electricity would still be with the current provider at normal rates BUT the 3rd party company would send me a monthly check for allowing them to get solar energy from my roof.

In Washington DC and Maryland the payback is typically 3-7 years due to all the incentives / credits

I strongly recommend against renting the systems as they get all the tax breaks and benefits. If you are going to do it - then buy it and own it.

@Steve K. I understand the OP is not buying or leasing the equipment. The company owns the equipment and rents roof space from the OP.

My poorly worded question is: how much money can they possibly make after paying to purchase the equipment and lease his roof? It's my understanding that a typical system will produce $150 a month in that area. A larger system might produce $300 a month.

It just seems like awfully thin margins. I would also point out that the OP would be signing up to a 20-year lease. That's a long time to commit just to earn a little cash.

@Chris Seveney I normally would agree with you regarding ownership/financing being a better option than leasing. Ownership is typically better in almost every way. However in the case of investment property, the owner may not be able to take advantage of the tax credit, in which case leasing is by default the best option to go solar because the leasing company can claim the tax credit and pass those savings on to the owner. 

@Nathan G. the leasing companies have driven equipment and installation costs so low that the systems are relatively cheap for them to install, and they sell the tax credit to entities looking for a tax haven, so that helps them recoup most of their initial investment and selling energy is gravy on top. You are not wrong that the margins are thin, if you follow any publicly traded solar leasing company you can see why they call it the “solar coaster”. I agree that 20 years is a long time to be locked into an agreement but the savings aren’t necessarily small, upwards of $50k for just an average resi system (in some areas depending on net metering, price per kWh, etc.) and much more than $50k for bigger systems. Keep in mind that the initial investment is often $0 when leasing so returns are infinite, it’s akin to getting a property with 100% financing and negligible mortgage payments.

DIsclosure: I work for a solar company (if anyone reading this hasn’t read all the other solar threads on here yet). Also just for the record owning/financing a solar system is superior to leasing in my book partly because returns are better and for other reasons as well, but in the case of investment property when the owner can’t claim the tax credit, then in that case leasing is currently the best option for going solar. For a primary residence I always recommend cash or financing, not leasing. 

Dan Broughton here.   We own a 30,000 SF flat-roof commercial property in Chicago that gets full sunlight coverage.  About 20,000 SF is open, the rest is taken up by HVAC units, etc.  We spend upwards of $25,000 per year on electricity.  Chicago is not the ideal market for solar because our electricity is relatively cheap and sunshine days moderate.  Still, we would like to do something for the environment.  I can convince my boss to lease our roof for a modest amount and to sign a long-term contract to purchase electricity for 5 - 7 years at the current rate.  Illinois has some new incentives that the solar-owner would retain.  Is the market at a point that this makes economic sense.  I know it will someday, when panels and installation are cheap enough.  Any help out there?

Hi Dan,  There are a lot of solar contractors operating in Chicago, which is a good indication that solar electric systems make economic sense in your market, but it will depend on the specifics of the roof, electrical usage history, type of meter at the property, and net metering agreement available from the utility. Best place to start would be to contact local installers, who will be able to provide free consultation and put together quotes for you. I would get 3 quotes to compare. Energysage, a rating website of solar installers, is a great place to find local companies to talk to. 

@Steve K. sorry I know this thread is a couple months old, but I was wondering, in the case where a homeowner is leasing their roof to a solar company, what happens in the case of a homeowner default? This is conjecture, but does the solar company sign the lease with the bank AND the homeowner? Especially if it is not the roof, but the backyard or something as I've seen some programs do. And I assume if the solar company defaults, the homeowner gets free panels?

Good questions @Pavan Iyer  !

Each lease contract spells out the terms of default specific to the company. Generally they say something to the effect of "We'll come take the panels back and sue you for damages". Leases use a fixture filing which is similar to a lien. I believe it would be treated like any lien obligation. The company could send you to collections and your property would have a cloud on title until debt was satisfied, etc.

I do know the default rate is low because income and credit requirements are high to qualify. The lease payment replaces the electric bill, often with a lower amount, so from a cashflow angle it usually improves the customers position. I’d be curious to hear what the outcome has been in actual default situations. I haven't personally heard of any.

 Regarding the solar company defaulting: tough question. Every case would be unique but some new entity would probably acquire the assets of the company including lease contracts during bankruptcy proceedings/dissolution of the company, and the new entity might continue servicing it but who knows. It’s possible there would be some orphaned systems.

Here's a link to a sample of a lease contract, including terms of default (note that this is an old contract from a company that is no longer leasing, and every company will have their own contract of course): http://nitnelav.com/SunPowerLeaseSample.pdf

@Steve K. great info Steve! I'm actually going to read through that lease to get a more detailed understanding, and I really appreciate your thoughtful response. I find the whole deal interesting as I would also think that, if the homeowner still on a mortgage, and they leased, say, part of their backyard to the solar company (maybe roof was not structurally sound, but plenty of southerly yard), it would trigger something like a due on sale clause, as the homeowner has given up part interest in their property, correct? I guess that's why I thought that for such a lease to work, you would have to get the lender signed on the agreement as well.

I also see that there seems to be an option for the homeowner to purchase the lease at what I would guess is some sort of amortized schedule. Would this also trigger an additional price in the case of a sale? As in, does the next owner either buy out the lease or the lease just transfers?

@Pavan Iyer  Mortgage lender not involved in any leases I've seen nor would defaulting on the lease ever trigger a due on sale clause in my estimation but might be worth talking to your lender about that. Note that in the lease contract the system is considered personal property, not a fixture. I do know that during a refinance, you have to get the leasing company to temporarily remove the fixture filing/lien which they then file again after closing on the refi. 

There are many ways to structure a lease agreement and again each company has their own offerings. The most common term is 20 years, transferable to buyer during sale if the buyer qualifies and agrees, or can be paid off prior to the sale usually by seller. Some companies offer prepaid leases, where you pay all 20yrs payments up front (for a generous discount). 

Before getting too carried away you should check with a local installer and see what options they offer in your area. Looks like you're in Atlanta. I know Georgia has good net metering policy and allows leasing, just not sure how a deal would pencil out for you because it varies so much location to location. Creative Solar and Solar Choice USA are respected local companies, and you could check with the national leasing companies SunRun, SolarCity/Tesla, and Vivint however I don't think any of the big boys are active in Georgia although I could be wrong about that. 

@Steve K. Makes sense. I did see in the lease that the owner must contact their lender to inform them it is personally property as well. It is all interesting to me because I recently saw a similar type of program for backyard homes in Portland (company is called Dweller) where they lease the backyard and build a small rental unit in the back (homeowner gets a monthly check, buyout clause is there, 25 year lease). I had the exact same questions about that and it seems as though the answers would be somewhat similar to how solar leasing may be done. They do prefab homes, so I assume it's because they can remove it (though it is affixed to a permanent foundation), though it sounds like a refi would be a huge hassle in that type of situation.

I'll definitely take a closer look into Georgia's rules. In general, we are not great for solar, but I do know that Tesla may be getting into the market, so that may end up being an option.

Thanks again!

Leasing rooftops or securing roof licenses can be a very complex endeavor. Usually you will end up granting air rights to the solar developer with access easements for the power lines and for the solar developer to maintain their solar equipment. Termination fee's for terminating the roof lease prior to the end of a 20-year term can also be a big deterrent. Solar developers are financing solar projects from institutional tax equity investors, so within the first 5-7 years their is a recapture period for tax equity. If the project is not in operation the tax equity investors can be seriously penalized.  Assuring that the you understand the penalty's associated with terminating the lease prior to the end of the term is crucial. Roof lease agreements also tend to be one-sided towards the solar company due to all of the languages and requirements set by the financial entities involved with the project. The last big concern with a solar roof lease is the roof itself. Most companies will only lease your roof if its a brand new roof with a full 25-year warranty that is in tact. If the roof is aged it would most likely need to be replaced prior to the lease. Certain developers may help fund the cost of a new roof.   Happy to share any other details as it can be a complex topic. I hope that this post was helpful and feel free to comment back if you have any direct questions.