I am in escrow on a property that has a solar lease agreement in place with a company called SunRun. The property was foreclosed, so the agreement appears to be null and void, though we have the option of assuming the contract if we want to. We plan to be in the home for 2-3 while remodeling it.
Here how it works. SunRun owns and maintains the solar equipment, which produces and average of 650 kWh per month, and we would be obligated to purchase ALL of the power [u]produced by the system at $.25/kWh. Our payments to SunRun would have nothing to do with the amount of energy the home consumes. Compared to the tiered rate structure of SDG&E, the breakeven point is at around 850 kWh per month. The company claims that they average historical usage of this home is around 1000 kWh/mo. I don't plan to use that much while living in the home, but maybe a potential buyer would, and would like to have the system in place, especially considering that SDGE's rates will likely increase over the next few years.
The main problem is that this contract is very difficult to get out of under normal circumstances. If we assume the contract and our potential buyer does not want the system, we would have to pay to have the system removed and roof repaired, or buyout the equipment at a cost of around $20k. As it is now, due to the foreclosure, SunRun has no recourse but to remove the equipment if we don't want to be in contract with them.
Also, this company does not have a great reputation. Plenty of horror stories pop up when you search their name online.
I'd appreciate any thoughts or advice on this issue.
in my opinion which i know little about it but it sounds to me you answered your own question. If you have heard horror stories then assume you will face the same. Not only that but it may be a positive but the downside seems a lot larger if you find some one who is not interested in it. Just doesn't seem worth it .
If I'm reading this right, I would cost you $162.50 per month for electric (650x.25). It might be a good deal if you are going to convert all of your appliances to electric. However, if your heat and appliances are gas, overall this is not really a great deal for this area. It could be a good deal in July-September if you run your A/C a lot, but the rest of the year it would probably be more costly than SDG&E.
We have tossed around the idea of putting in solar, but I never got around to running the numbers on it. Your post make me look at my electric bill to see if this would be a good deal. Personally, I wouldn't do it. My house is about the same size as yours.
Anything attached to your roof? If it is, they will need to make repairs, how is that going to go? You can probably get a similar system for less and finance for less, pretty sure, investigate your own system if you want solar, if they don't have a good reputation, get rid of them. good luck...
@Theresa K. - You are reading that correctly.
Bill G. - The panels cover about 600sf of roof space and are attached. My assumption is that the solar company will come out and remove the equipment and the bank will have to pay to repair the roof. We have told them that we don't want the panels unless they are willing to renegotiate the rate with us. Otherwise, they are stuck with the cost of removal.
I'll let you know as things develop.
I bet the solar company needs to restore the roof, the bank will usually not make repairs, better ensure it's done before you close otherwise you'll be dealing with the leaseholder. Good luck..
Update: We have notified the seller and the solar company that we will not assume the lease. The seller (bank) says that they will not allow the panels to be removed before COE. The company says that they will come out and remove the panels and inverter, leaving the footings and rack system in place, thereby avoiding responsibility for repairing the roof.
I decided to pass on the lease because for the same (or less) money I can make payments on a purchase option for a slightly larger system. The declining cost of solar has made their lease agreement basically obsolete. We'll leave the racking in place and use it for the new system.
Why anyone would take on one of these leases is beyond me.
Update: The company offered us a contract that would reduce the rate for 2 years, at which point it would return to the original rate. I said no thanks. Seems they are willing to negotiate because they know that the economics of solar have turned against them.
Hey Steven, can you shoot me a private message, I am about to be in the same situation with the solar panels and was hoping you could give me some guidance.
I have a PPA (power purchase agreement) from Solar City. It is similar to a lease, but I am not required to use all the power produced - that seems like an odd arrangement there. If the system overproduces the excess goes to the grid and comes back to me as a credit from the local utility. I'm paying Solar City .09/kw here in Colorado (that's about what the local utility charges now), with a 2.9% increase each year. I know electric is a lot more expensive in other parts of the country - especially California.
In the end, I may come out ahead (or behind!) financially, but that wasn't my main motivator. This was a way that I could get some renewable energy set up for my home without any out of pocket costs. I also didn't want to own the panels and be responsible for maintenance, etc
Resolution: After 7 months of negotiations and free solar power, we reached an agreement with the solar company. They final got serious with their offers, and we opted to prepay the balance of the guaranteed production for $5,000, which comes out to $.06/kWh. They gave us the option to buy the equipment outright for $6,000, but then we would have to deal with inverter replacement (4-6 years down the road), and any other maintenance that may be needed. If we sell, our buyer would have no financial obligation to the company.
Nice work Steven
I'm in the exact same position BUT it's not a foreclosure. Anyone have ANY idea what my leverage is if any? I don't want to assume this lease, it's ridiculous for me. LOVE the home and I love the idea of solar, but NOT a lease.
How long has the lease been in place, and how long of a lease is it? How long are you planning to own the home? Your leverage will come from having a firm grasp of the numbers and presenting the seller with a reasoned argument for why it doesn't make sense for you. You may end up paying more for your power for years until utility rates increase to equal the amount set by the lease, but if you don't stay in the house long enough you may never see the benefit. The counter argument to that is that you'll be able to sell the home and offer the next buyer the much more attractive part of the lease - the last half. I assume that you have a copy of the lease agreement. What does it say about the obligations of the current owner if you decided not to assume the lease? They would likely be on the hook for a large sum of money, so they would either need to cough up the money in accepting your offer, or they would have to wait for a buyer who wants it. Either way, they lose money and/or time.
I am in a similar position & have contract in hand to assume lease that has been in place for 4 year (10 year lease). I am still debating if this is a good decision or not.
Hi Steven We are in currently in escrow on a home with a solar panel lease. The owner passed away and the solar lease was in his name. We have declined to assume the lease and are not willing to negotiate that. The family claims that they are able to have the panels removed because the lesee has passed away. We are 2 weeks from COE, all inspections and appraisal have been done, but the panels are still on the home. After scouring the internet I can't see how they are able to get out of this lease. I am in fear of what may happen. Given your past research due to your solar panel debacle, can you offer any insight? Thanks.
That's a tough one, but I don't think you have anything to worry about. If the deceased's estate is still on the hook for the lease, it'll take time to sort that out, and you'll likely be reaping the benefits of the panels during that time. It's possible that the estate would have to pay off the balance of the lease, and if that's done after COE, you get free solar. If the lease is nullified, the solar company could come take the panels, but will likely try to negotiate with you, and you're in a strong position. After COE, you hold all the cards. And even before COE, it's unlikely that the family would let the situation with the lease derail the sale. Would like to hear how this one ends... Good luck!
SunRun is very hard to get an end buyer approved for, too. Plus, the end buyer would need to have DTI room for the extra payment to SunRun and that is a hard little box to put your property in.
As an Escrow Officer, these are nightmares to have in escrow, so if you could get out and its not a huge impact on the costs/efficiency of the house, take em off!
Danielle Miller, I am in a similar situation. Did you have any problems closing escrow? Is there any possible way that we could be on the hook for the lease if the seller hasn't required us to take over the lease? How did it end up? Do you have any advice?
I am a real estate broker in California going through the same issue with a client selling his home. He is an investor who bought the property at trustee sale foreclosure auction. The law states anything attached to the property becomes real estate and transfers to the buyer at auction. If the solar panels are attached to the roof then they belong to the property. Sun run will fight you but the law is on your side do to the fact they are in 2nd position to the 1st mortgage and by law all and anything after the foreclosing mortgage is wiped out in California. Some states are different so i would consult with an attorney. Our attorney is dealing with them now. Also it is recommended that you file a small claims case against them to remove the null and void lease agreement from title. For this specific reason of losing panels to foreclosure, Solar companys have started attaching themselves to the tax rolls which are senior to the foreclosing loan. That makes them still in first position and there interest is not wiped out through foreclosure.
In less than 2 days I went from being a newbie to getting a solar lease. My offer on a home was accepted and the seller has a contingency that the buyer should take over the Solar Lease. Today, I made a couple of calls to Solar Company (Sunnova) and my Local utility company (SDG&E San Diego Gas & Electric).
The PPA Power purchase agreement requires me (Buyer) to take over the Lease. It states a flat rate of $130/month at a rate of $0.15/KWh. The local utility company told that they buy the excess Solar energy at a wholesale rate of $0.027/ KWh (approx 3 cents/KWh). So, I am essentially putting my own money and subsidizing the electricity i buy from Sunnova (15 cents/KWH) and give it to SDGE (3 cents/KWh). This is only the 2nd year of the lease.
The problem is I like the home and really want to buy it. I am not sure what my options are to get out or atleast reduce the monetary impact of this lopsided solar lease contract. To put things into perspective, I am actually a frugal electricity end user. My monthly bill is around $30 staying in an apartment. SDGE mentioned they will still charge me ~$20/ month for minimum usage for Distribution & Transmission.
Even if my consumption goes up to say $50 in the new home, I will still be paying ~$100/month from my pocket and helping the Solar company & SDGE.
You all are experts and hopefully someone will shed some light or give me an idea / advise in this regard.
Thanks a lot for all the help in this matter.
While I am certainly not an expert in solar or real estate, my advice would be to present the numbers to the seller as a bargaining chip. If they haven't had many offers, maybe they will be willing to make concessions in order to keep you from walking.
Thanks Steven Straughn. I will give it a try.
Good to see you are also from sunny San Diego.
I suspect you will find that electricity usage in an apartment is very different from a house and that you will be selling a lot less power back to SDG&E at wholesale rate than you are anticipating. If you have net metering the buyback does not occur monthly but annually. This is good because there will be variation if both the power generated (summer is more than winter) as well as power used (typically AC is large electricity user and typically at worse in Aug and Septempber (but not so much this year)).
My point is that I suspect the lease will not be as bad as you have calculated. Still if you are conserve your electrical usages $130/month is slightly high cost.
Thanks a lot Dan. I am looking forward to moving to Poway.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.