Rooftop Solar – The Basics and Important Considerations

Solar panels on residential roofing are undoubtedly becoming more popular. Although solar panels are about 70% less expensive than they were ten years ago, they are still costly—about $16,000 on average, with some installations even topping $35,000. Because of these significant upfront costs, many homeowners lease the solar panels on their roofs instead of purchasing them outright.

What is solar leasing?

Like leasing a car, a solar lease allows you to pay a fixed monthly amount to a solar company that owns the solar panels on your roof. While the solar installer owns the solar panels on your roof, you get all of the energy the panels produce. Additionally, the solar company is responsible for designing, installing, and maintaining solar panels.

Considerations to make before signing a solar lease

This isn’t an exhaustive list, but here are several things you should consider before signing a solar lease:

• Length of lease – Most solar lease contracts have a lease term that spans over 20 to 30 years. Because it’s unlikely that you’ll live in your house for the full term of your lease, some companies allow you to transfer your lease (and system) to your new home. Conversely, other companies may consider your moving to be an early termination of your lease contract, thus requiring you to pay substantial fees.

• Monthly payment – Solar lease contracts often include a price escalator clause. The price escalator clause reflects the increase in the cost of electricity. This means that your lease payment will go up each year accordingly with the increased cost of electricity—on average, this increase ranges from 1 to 5 percent annually.

• Tax credits – Most state and federal governments offer significant tax credits for solar panels. However, you often will not receive these tax benefits under a solar lease agreement. Instead, the owner of the solar panels—i.e., the solar company—gets the tax benefits. For example, the federal tax credit for solar systems installed in 2020-2022 is 26% of the cost of the solar system. Using the average solar system cost of $18,000, this means sacrificing a $4,680 federal tax credit if you opt to lease instead of purchase.

• Monthly savings – While solar panel technology is increasing year after year in its efficiency, it’s unlikely that your new solar system will allow you to eliminate your electric bill entirely. The average solar system reduces electric bills by 10 to 30 percent. This is an important consideration for homeowners weighing the pros and cons of installing solar panels in general, let alone whether to lease or purchase them.

• Maintenance and damage – The solar company will be responsible for the general maintenance of your solar panel. Additionally, some solar leases cover repair if the panels are damaged through no fault of yours—a fall tree branch or hail, for example. This is one of the biggest benefits of leasing solar panels.

• Early termination/buying out lease – Almost all solar leases offer a buyout option that allows you to assume ownership of the solar equipment installed on your roof. As with most leases, buying out or terminating a solar lease prematurely may require you to pay a sizeable fee. Additionally, as mentioned above, some companies may assess additional fees if you move before the end of your lease term.

• Selling your home – The debate is still out on whether solar panels add value to your home. Regarding leasing or purchasing, many real estate agents argue that leased solar panels make it more challenging to sell your home. This is because buyers are wary of inheriting a legal agreement that they did not originally enter into. Assuming the previous owner’s solar lease that has a 30-year term is a huge commitment for any new homeowner to make.

• Homeowner’s Associations – Many homeowner’s associations (“HOAs”) have restrictions on residential solar panels. These can range from outright bans, to requirements on size, placement, and other specifics. Homeowners should make sure to become familiar with any such HOA requirements prior to entering into a solar lease.

Residential solar leasing is rapidly becoming one of the most popular ways to go solar. But, while solar leases make solar energy more accessible, homeowners need to make several important considerations before jumping in. If you’re considering entering into a residential solar lease but are concerned about the legal risks, contact the attorneys at McNeelyLaw today.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.