How to Structure Solar Panels into the Lease

Jersey City, New Jersey
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How to Structure Solar Panels into the Lease

Andrew T.
Northern NJ · Member since 2022 · 7 posts · 5 votes

How dose one incorporate Solar panels into the lease, in terms of tenant paying the electric utility? Specifically, I am planning to rent out my home which I own solar panels and currently have a loan ending in 5 years. Our electric utility Co. charges me for the months which my electric usage is greater than the electricity generated by my panels, typically during the winter months. The electric utility has to stay under my name so that I can track and apply for Solar Credits monthly.

Should I simply charge a flat monthly fee for electricity? Would love to know what others have done!

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Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y

@Andrew T., if your bill is broken out sufficiently I'm betting you know how much the bill would be WITHOUT the solar. If so, just bill them back that amount each month. I use apartments.com so my tenants can do online bill payment. So, billing back isn't too onerous for me.

However, if that sounds like too much of a hassle, I would just estimate the average yearly usage and factor it into the rental price and include electricity with the rent. Then just do an annual review of usage at lease renew time to see if any adjustments need to be made. 

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  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    3y

    @Andrew T., if your bill is broken out sufficiently I'm betting you know how much the bill would be WITHOUT the solar. If so, just bill them back that amount each month. I use apartments.com so my tenants can do online bill payment. So, billing back isn't too onerous for me.

    However, if that sounds like too much of a hassle, I would just estimate the average yearly usage and factor it into the rental price and include electricity with the rent. Then just do an annual review of usage at lease renew time to see if any adjustments need to be made. 

    2Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Andrew T.:

    Determine a monthly average for the past year, add 15% - 20% for excess use, and add it as a monthly charge or increase the rent to cover it.

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Keep it simple, charge a flat rate based off of previous usage. 

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  • Andrew T.
    OP
    Northern NJ · Member since 2022 · 7 posts · 5 votes
    3y

    Thank you all for your responses. I could charge monthly based on the electric usage and the going kW utility rate. However, the simpler route of determining a monthly average for past year and incorporating that into the rent seems to be more appealing. There is the risk that the tenant may negligently use more electricity as a result, but I suppose that is a risk I'll take and can make any adjustments at lease renewal.

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  • Andrew T.
    OP
    Northern NJ · Member since 2022 · 7 posts · 5 votes
    3y

    Update: What I ended up doing which I really liked, as some have suggested here, is I built in cost of solar into rent. Its a win win for landlord and tenant. Landlord gets to raise rent and have solar paid off consistently, without hassle of asking tenant for monthly payments based on electric bill and solar production. Its a win for tenant because on their end they don't know rent has been raised due to solar (although you can certainly mention it if need be), and instead they see a lower electric bill. 

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  • Byron VallesPro Member
    MSFP, CFP, Financial Advisor · San Francisco Bay Area · Member since 2020 · 66 posts · 53 votes
    3y
    Quote from @Andrew T.:

    Update: What I ended up doing which I really liked, as some have suggested here, is I built in cost of solar into rent. Its a win win for landlord and tenant. Landlord gets to raise rent and have solar paid off consistently, without hassle of asking tenant for monthly payments based on electric bill and solar production. Its a win for tenant because on their end they don't know rent has been raised due to solar (although you can certainly mention it if need be), and instead they see a lower electric bill. 

    nice going, Andrew! I was in a similar situation a couple of weeks ago. I thought about including the cost of the solar into the rent as well but I was afraid the rent was already towards the higher end based on comps. I ended up just charging a flat monthly cost and told the tenant that the cost would cover up to 130% of the monthly average usage, anything above that I would bill based on the utility company's standard rate. 

    I hope to adopt your way in the future once rent comps support it. 
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  • Andrew T.
    OP
    Northern NJ · Member since 2022 · 7 posts · 5 votes
    3y

    Thanks Byron! I was tempted to use your method as well. The end result is nearly the same for your method vs mine in terms of charging extra. The main difference I see is in your method of charging a flat rate, the tenant clearly understands the reason for the charge whereas an increase in rent could be more vague and potentially scare tenants away from the get go. But for those who showed interest in the property, the lower electric bill was a big wow factor in attracting them, as if it was "free $$".

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