Leasing solar panels: how does it work?
Most people choose to buy their solar panel system outright. However, this can be a significant investment and may be out of some households’ budgets. Leasing has emerged as an alternative, giving consumers who want to rely on renewable energy access to solar panels without the large upfront cost. Let’s take a look at how it works.
How does solar panel leasing work?
Leasing is defined as a financial arrangement in which a person pays to use something for a particular period of time (known as a fixed term).
When solar panels are leased, a third party installs them on your property, then sells you the electricity they generate. These payments can increase over the term. The rate at which they increase will be noted in your agreement, so make sure you take this into account before you sign anything.
The fixed term is normally around 20 years. Once this is over, you can buy the solar panel system, have it removed, or renew your lease and continue making monthly payments.
Solar panel leasing agreements can differ, so always check the terms and conditions carefully before you sign up.
Can tenants lease solar panels?
Yes, if you rent your property you can enter into something called a rooftop lease agreement with your landlord. Through this agreement, the landlord can arrange to have the solar panel system installed, then sell the power generated by it back to you, the tenant. The landlord benefits from owning a property with environmentally friendly credentials, while you benefit from being able to power your home with renewable energy and rely less on the grid.
How much does it cost to lease solar panels?
The cost will vary depending on the type of solar panels you have installed, the monthly payments you make, and how much these payments increase over the length of the fixed term.
Often, the total cost of leasing solar panels will be more than if you’d bought them upfront. However, many people find the monthly payments more manageable.
You won’t have to pay for maintenance, as this is the responsibility of the company.
Interested in renting your system? Leave your contact below. We’re launching this service soon and will let you know when you can sign up.
The pros and cons of leasing solar panels
- Leasing allows people who want solar energy but can’t buy the panels outright a chance to use the technology.
- No upfront costs, as you don’t have to buy the solar panel system.
- You can save on the cost of electricity, as you won’t rely on the grid so much once the solar panels have been installed.
- Your carbon footprint will be lower, as you’re reducing your use of fossil fuels.
- You don’t need to worry about maintenance, as the solar panel company is responsible for looking after the system.
- Using solar panels can improve your property’s Energy Performance Certificate (EPC). This can help to sell it if you decide to move.
- You can buy the system if you wish to.
- In the long term, a leasing agreement can cost more than buying the solar panel system outright.
- It may be difficult to sell the property if you do decide to move, as the solar panel company must give you permission to sell, and some mortgage lenders are wary of offering loans for properties with leasing agreements in place.
- The leasing agreement may prevent you from making outside renovations.
- You need to be careful about any changes or repairs you make to your roof, as you may be charged a penalty if they reduce the efficiency of the solar panels.
Buying or selling a property with a solar panel lease
Buying or selling a property with a solar panel lease can be more complex than buying one without. This is because:
- Some mortgage lenders are wary of offering a loan when part of the roof is leased to a solar panel company, meaning the homeowner doesn’t own the roof outright. They may not offer one at all. This problem can be avoided if the person purchasing the property is a cash buyer, but finding one may take time.
- Other mortgage lenders may require that:
- The installation company is certified by MCS
- The installed solar panel system is insured and approved to join the grid
- They know what’s in the lease agreement and what happens if the property is repossessed
- The panels can be removed without incurring penalties from the leasing company
- Finding the leasing company can sometimes cause delays in the conveyancing process, especially if the company no longer trades.
- The leasing company may have contracted a third party to manage the solar panels, and the third party may charge the homeowner a fee when they sell.
- Some lease agreements have conditions that may put off potential buyers, such as:
- Prohibiting you from extending the property without the company’s permission
- Prohibiting you from selling the property without the company’s permission
- Charging the homeowner for lost revenue if the solar panels need to be temporarily removed (for example, if the roof needs to be repaired).
Buyers and sellers can buy out the lease, but this can be expensive given that the duration of the fixed term is often between 20 and 25 years.
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Ending a solar panel leasing agreement
The process by which you end a solar panel lease agreement can vary depending on the terms. Generally, there are three main options.
- You pay the outstanding balance on the lease agreement, therefore buying out the solar company. Some agreements specify that you must wait a specific period of time before doing this. Once you’ve paid, you can choose whether or not to keep the solar panels on your property.
- A third party is brought in to assess the fair market value of your solar panel system, looking at factors such as how long it’s been active and the current value of similar products. You can then buy the system at this price.
- If you’re selling the property you may be able to transfer the lease to the new homeowner. This requires extra paperwork and costs. Some buyers may be willing to accept this if you reduce the asking price of the property by the cost of the transfer fee.
It’s important to assess your financial situation and energy needs when considering solar panel leasing. While solar panels are undoubtedly an excellent way to power your home using renewable energy, a lease is a big commitment. Do your research so you can make an informed decision on whether leasing or buying a solar panel system is the right choice for you. And please don’t hesitate to get in touch with us at Otovo if you have any questions.