What you need to check before buying a house with solar panels
Solar panels mean cheaper electricity and maybe a revenue stream. But pitfalls await the unwary. Here's what you need to check before making an offer.
Will you actually own the solar panels?
Solar panels are usually fixed to the most southerly facing pitched roof on a house. However, just because the panels are fixed to the property's roof, it doesn't necessarily mean that they belong to the property owner.
Rent a Roof schemes
In 2010 the UK government introduced the Feed in Tariff (FiT) which was, in hindsight, so generous that many companies offered to fit solar panels for free.
These free schemes are known as 'Rent a Roof' schemes.
Under the scheme, the homeowner would typically grant a lease (usually 25 years) to a third party or company allowing them access to the roof in return for a free installation. Between 2010 and 2012 a typical 4kw panel installation would have cost over £15k, so it is easy to see why so many people were seduced.
Fast forward to 2017 and a typical 4kw installation would cost around £6k and as a result, Rent a Roof offerings have all but disappeared.
However, this leaves a significant number of homes in the UK that are bound by the terms of the lease.
Although the implications of this may not have concerned the owner at the time, the lease is binding on any subsequent owners of the property.
Will you be able to get a mortgage on the property?
If the solar panels were installed as part of a Rent a Roof scheme then there may be complications in obtaining a mortgage.
For example, if the lease includes any maintenance cost obligations on the new owner or if there are certain access rights granted to the lessor, the lender may be unwilling to lend.
Most of the mortgageability problems to date relate to free installations carried out by companies whose legal paperwork was not drafted in accordance with the CML guidelines and/or who were not Microgeneration Certification Scheme (MCS) certified.
Nevertheless, the Royal Institution of Chartered Surveyors (RICS) has issued a caution to all home buyers about the potential mortgageability issues facing homes with free solar panel installations.
If possible you should obtain a copy of the solar panel lease and get your conveyancing solicitor to look at this as soon as possible, ideally before you make an offer. There is no sense putting in an offer and waiting 2 months before the lease is produced, only to find out at that stage that you cannot obtain a mortgage on the property.
Get your solicitor to look at the solar panel lease before you make an offer.
There may be a buy out clause
Sometimes leases contain 'buy-out clauses' meaning the new owner can buy their way out of the lease. The buy-out premium is usually the cost of the installation (typically £10-15k) plus a premium.
If your solicitor confirms that the property may be difficult to mortgage, you could arrange for the buy out to be completed by the vendor prior to completion.
If the vendor does not have the funds you could suggest that they use the deposit money between exchange and completion. The lender will most likely be prepared to lend on this basis.
You should also make sure that this added cost is fairly reflected in the asking price. It would not be unreasonable to expect the purchase price to be reduced accordingly.
If the lease does not contain a buy-out clause then things may get more complicated and expensive. The lessor could even argue that they should be compensated for any future loss of revenue over the 25 year lease period.
Speaking to your solicitor and mortgage lender as early as possible is key.
Will you be able to extend or improve the property?
This can be problematic if you intend to do a loft conversion, extension or any other works that could disturb the solar panel installation.
You may find that you are prohibited from developing your own property until the expiry of the lease.
Do the panels generate any meaningful income?
Smaller solar panel installations may only generate a small income for the home owner. The new owner may be inheriting anything up to a 25-year obligation and inconvenience.
You should, therefore, make sure you are certain that you are confident that the often paltry income is worth losing the option of being able to develop the property.
The new owner may be inheriting anything up to a 25-year obligation and inconvenience. You should, therefore, make sure you are certain that you are confident that the often paltry income is worth losing the option of being able to develop the property.
You should, therefore, make sure you are certain that the often paltry income is worth losing the option of being able to develop the property.
Who actually owns the installation?
The Rent a Roof model was more prevalent before 2012 when the government scrapped the 40p feed in tariff.
Many installation firms adopted a short term business model whereby the lease was sold on to investment companies on the basis of future income.
It may be difficult to identify the lessor company and correspondence with this company during the conveyancing process may be frustrated.
Unnecessary delays in the conveyancing process
The time taken in identifying and communicating with investment company lessors can unnecessarily protract the conveyancing process which can in turn risk the transaction falling through.
You should, therefore, get as much information about the installation from the vendor as early as possible - preferably before you make an offer.
Check the Feed in Tariff details
If the solar panel installation is owned by the property owner it would be worth looking at any installation guarantees and other documentation detailing eligibility for the feed in tariff where applicable.