How Solar Panels Can Impact the Real Estate Transaction

The increasing number of solar panel installations on properties means there are several aspects to be aware of during the transaction process. 

What kinds of solar agreements are there?

• Solar leases – the property owner pays a flat fee per month to lease the solar panels from the solar company, much like a car lease. These leases can range from 5 years to 20 years or longer.  
• Power purchasing agreements –  the property owner pays for the amount of power used by the property owner. Each month, the amount due to the solar company will vary depending on the electrical use of the property owner.
• Financed to be purchased

For the purposes of a real estate transaction, these agreements are essentially the same, as they have the same methods of enforcement via a lien. Solar companies can record the Uniform Commercial Code (UCC) financing statements that create a lien on the solar panels. This allows them to be repossessed if the property owner fails to comply with the signed agreement. 

Be aware that solar companies are inconsistent when it comes to filing a UCC and have been known to file one only when they become aware that the property has gone on the market. This means it may not show on your O&E as they may not yet have been filed even though it is encumbered.

Solar Panels in the Contract to Buy and Sell Real Estate

• Within the contract, real estate professionals should list the solar panels as either an inclusion if they are owned in 2.5.1, or in 2.5.8 if they are leased. Paragraph 2.5.9 will disclose an existing agreement will be prepaid by the seller or assumed by the buyer.
  
• With a prepayment of a lease, ownership does not transfer. If a seller is in a lease agreement, the buyer prepaying the lease does not signify ownership. The buyout price is separate from the lease payments.
  
• There is also the possibility that the parties have contracted for the seller to pay off the solar panel lease, in which case the UCC financing statement would be released at closing. 

• The other contract provision that references solar panels, Paragraph 2.5.5, discusses owned solar panels that may have an encumbrance on them; this is likely to be a loan.

How are solar panels handled through the closing?

How the solar panels are handled through the closing will depend upon the current arrangement between the seller and the solar company. Here are some considerations:

• Warranties and Guarantees: Purchasing panels directly often waives most equipment and production guarantees that come with leases. After purchase, typically only manufacturer warranties apply, and the system may no longer be monitored, making the owner fully responsible for repair costs.
• Contract Clarification: Some agents may not complete the solar sections of the contract accurately.
  • Review the contract carefully to determine if the solar panels will be handled as a Purchase, Prepayment, or Assumption.
  • Land Title’s new Solar Authorization Forms confirm that all parties understand the type of transfer.
• Assumption Limitations: Some agreements cannot be assumed and must be paid off by the seller. Others allow assumption only if the balance owed is above a certain amount.
• Energy Credits: Buyers may need to apply for applicable energy credits.
  • Energy Credits primarily refer to the federal solar tax credit and potentially any state or local tax credits or rebates that the buyer might be eligible for after they take ownership, and if they meet the specific criteria.
• Service Agreements: Owned panels might have service agreements that also need to be transferred.

All of these issues are handled daily by the title and closing teams. The complications that arise are often due to a lack of information within the contract and from the parties. Educating customers about this topic can hopefully allow for smoother transactions for all parties.

Disclaimer: This publication is designed to provide accurate and authoritative information regarding the subject matter covered at the time of publication. It is distributed with the understanding that the publisher is not engaged in rendering professional services or advice. If professional advice or expert assistance is required, the services of a competent professional should be sought. ©Copyright, 2025, by Land Title Guarantee Company.