Buying & Selling Homes with Leased Systems in place

Thursday, November 7th, 2019 at 3:27pm.

This blog is written to bring to your attention some often-problematic issues with selling/buying a house, specifically existing leases.



SOLAR AND SECURITY LEASES:

Did you realize there are leases that can create issues during the purchase and sale of a house?  These can include the solar system leases, and less thought of, the security system leases.  Pre-existing leases should always be disclosed in a property disclosure by the seller, and need to be dealt with in order to prevent delayed closings and even potentially failed transactions.  When a lease exists, there are some options:

1- the seller can try to terminate the lease early and potentially pay any penalties involved, as well as have the system removed prior to closing, ideally prior to listing their home if termination is the plan anyways.  In my experience, solar panel contracts cannot be terminated and the buyer must assume the remainder of the lease unless the contract is paid out, which brings us to...

2- the seller could pay off the existing lease so that the system in question is now owned and simply conveys with the sale of the property.  Whether the system adds value to the home is another question and I'll touch on that further down.  Note that if a seller fails to disclose the existing lease, they could be responsible for any termination fee or payment of the remainder of the contract in full.

3- the lease could remain in place and the buyer would have to qualify for the assumption of the lease expenses in their debt-to-income ratio assessed by the lender providing their mortgage.  This can interfere with a buyer's ability to purchase the home and has caused deals to fall apart in the past.  Clearly the expense involved with solar panels is higher than security systems, but both carry their consequences if not dealt with early.  A buyer's credit score may also be a factor in whether the company will even allow assumption of the lease.

4- the seller can try to arrange for the system relocation to their new home if they can afford to and if allowed by the company, and should be clearly outlined in the contracts for the transaction.  Be aware there may be repair costs to the roof or walls for the various system relocations or removals.

Whether you are buying or selling, if there are any possible systems that carries a lease, ask questions!  Even with smart systems like the Ring doorbell or the Nest thermometer, be prepared to inquire about the current contract and ask for the systems to convey if you would like, knowing that the buyer accepting those smart systems will need to initiate their own contract for the monitoring and function of them after closing.  Provide or obtain as much information as possible regarding:  Service type, length of contract, monthly costs, name and contact info for provider.

Per some appraisers and Realtors' experiences, solar systems that are owned may or may not increase the appraised value of a home.  Some of the factors include recent sales of homes with solar panels in the immediate area.  If there are enough such that the 'comparable sales' analysis includes mostly homes with panels, it's been said they may add up to $10K in value; however, if there are very few recently sold homes with panels, chances are there will not be any increase in value.  No one can guarantee an increase in value.  Prior to listing a home, your Realtor's careful analysis of home sales nearby will help you decide whether to try and ask for a higher price in order to recuperate just a small fraction of the expense paid for the system.  Much like swimming pools, the amount of return on your investment in solar panels may be limited here in New Mexico.

Each situation will be different, so let's handle your situation in our early discussions.

By Lydia Shewchuk