Contemplating offer on a house with SolarCity lease

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motorcyclesarecool
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Contemplating offer on a house with SolarCity lease

Post by motorcyclesarecool » Sun Nov 19, 2017 8:15 am

I don’t like the idea of assuming responsibility for the remainder of a 20 year lease I probably would not have entered into myself. Anybody here “in the know” about SolarCity leases and able to alert me of what to look out for?

According to SolarCity website, there are three options:
1. Seller buys out the remainder of the lease before closing.
2. Buyer assumes responsibility for the remainder of the lease.
3. Seller uninstalls panels, installs them on next house, and continues lease at new property (subject to Utility sign off)

Also, what should I expect should the lessor become insolvent?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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dwickenh
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Re: Contemplating offer on a house with SolarCity lease

Post by dwickenh » Sun Nov 19, 2017 9:35 am

motorcyclesarecool wrote:
Sun Nov 19, 2017 8:15 am
I don’t like the idea of assuming responsibility for the remainder of a 20 year lease I probably would not have entered into myself. Anybody here “in the know” about SolarCity leases and able to alert me of what to look out for?

According to SolarCity website, there are three options:
1. Seller buys out the remainder of the lease before closing.
2. Buyer assumes responsibility for the remainder of the lease.
3. Seller uninstalls panels, installs them on next house, and continues lease at new property (subject to Utility sign off)

Also, what should I expect should the lessor become insolvent?
I have no specific knowledge of the lease agreement. If I would not have entered into the agreement myself, I would not buy my way into the agreement. If you are ok with the solar power grid, make the owner buy out the lease without raising the price on the house. If he won't, move on to the next property. I would worry about damage during removal of the panels.

Just my opinion,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Soon2BXProgrammer
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Re: Contemplating offer on a house with SolarCity lease

Post by Soon2BXProgrammer » Sun Nov 19, 2017 9:38 am

Give the seller these two options and play hardball:

option 1. seller buy lease out and you get solar free without a price adjustment.
option 2. seller takes panels with him and installs you a brand new roof without a price adjustment.

Either way you win.

Point
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Re: Contemplating offer on a house with SolarCity lease

Post by Point » Sun Nov 19, 2017 9:58 am

Your first sentence says it all. I would not inherit others questionable decision via a purchase. Have them remove the liability.

stan1
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Re: Contemplating offer on a house with SolarCity lease

Post by stan1 » Sun Nov 19, 2017 10:28 am

Only accept the sellers paying off the lease through escrow with the payoff amount going to Solar City. Make the removal option too hard for the seller by insisting upon full inspections without lifting contingencies until after the work is done all while not slipping the date the house closes. Insisting upon roof replacement might also work to discourage this option depending upon type of roof. If you are willing and able to walk away you'll have high leverage. If you love the house or you need to move you can negotiate down on the payoff amount if needed but I'd try not to. If your realtor immediately recommends negotiations or assuming the lease you hired a lazy realtor and you should consider yourself warned he/she isn't looking out for your interests. Seller's realtor should have already warned them this was coming so hopefully not a surprise.

bcowan12
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Re: Contemplating offer on a house with SolarCity lease

Post by bcowan12 » Sun Nov 19, 2017 11:36 am

Another consideration would be whether the existence of the solar lease is reflected in the price of the house. I've read recently that a lease negatively affects the value. I couldn't find the article from earlier this summer, but did find one from a couple of years ago. It says:
"I found that owned (solar) systems almost always seem to generate a small premium in the sale price of the home while leased systems do the opposite," Orr said. "I think it is fair to suggest that an owned solar system can add 4 to 6 percent to the value of a house."

He said a leased solar power system can detract 3 to 8 percent from the value of a metro Phoenix home.
The full online article is here: https://www.azcentral.com/story/money/r ... /30296123/

Bruce

motorcyclesarecool
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Re: Contemplating offer on a house with SolarCity lease

Post by motorcyclesarecool » Sun Nov 19, 2017 3:27 pm

Is there any value in assuming the lease? I see all sorts of value to SolarCity shareholders in these leases,though. Am I looking at this too harshly?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

Mudpuppy
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Re: Contemplating offer on a house with SolarCity lease

Post by Mudpuppy » Sun Nov 19, 2017 4:01 pm

motorcyclesarecool wrote:
Sun Nov 19, 2017 3:27 pm
Is there any value in assuming the lease? I see all sorts of value to SolarCity shareholders in these leases,though. Am I looking at this too harshly?
I'd personally only see that value if (a) it is a very unique house, where it unlikely to have something comparable come up again soon, (b) the seller refused to budge on buying out the lease, and (c) it would be very difficult / expensive to repair the damage left behind by taking out the panels.

ClaycordJCA
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Re: Contemplating offer on a house with SolarCity lease

Post by ClaycordJCA » Sun Nov 19, 2017 5:54 pm

This is why I purchased our solar panels. I knew we would downsize and didn’t want to be subject to a solar company’s right to refuse assignment of the lease to the prospective buyer and limiting the number of prospective buyers.

Your situation is all a matter of negotiation, how the house was priced, housing demand in your area. What does your realtor say?

Lyonsguy
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Re: Contemplating offer on a house with SolarCity lease

Post by Lyonsguy » Sun Nov 19, 2017 6:38 pm

A friend of mine is very displeased with the lease on his solar - the first year was great as the lease was 20$ but it saved 50$ of electricity a month. But the price/mo th has gone up every year so now the payoff is so much smaller. The lease agreement may likely be locked in, but that is another thing to consider

tmhudg
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Re: Contemplating offer on a house with SolarCity lease

Post by tmhudg » Mon Nov 20, 2017 9:07 am

That moment when you wonder if you've made a terrible mistake...

I did the SolarCity thing - but I'm not quite sure if it's the same thing we are talking about here. SolarCity put panels on my roof (I replaced the roof before the panels went on because it was about 20 years old at that point) and I paid nothing for the panels. I now pay SC a reduced rate for the power I get from the panels and pay the electric company the regular rate for the rest of the power I use. I have net metering so the meter runs backwards in the Summer for a few months.

It seemed like a win-win for me at the time and I'm struggling to understand the downside expressed here.

If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?

Is the lease discussed in this thread different than what I have perhaps?

stan1
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Re: Contemplating offer on a house with SolarCity lease

Post by stan1 » Mon Nov 20, 2017 9:48 am

tmhudg wrote:
Mon Nov 20, 2017 9:07 am
I did the SolarCity thing - but I'm not quite sure if it's the same thing we are talking about here. SolarCity put panels on my roof (I replaced the roof before the panels went on because it was about 20 years old at that point) and I paid nothing for the panels. I now pay SC a reduced rate for the power I get from the panels and pay the electric company the regular rate for the rest of the power I use. I have net metering so the meter runs backwards in the Summer for a few months.

It seemed like a win-win for me at the time and I'm struggling to understand the downside expressed here.

If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?
My recommendation would be to disclose up front in the listing that the solar panels are leased and that the lease conveys to the buyer. That way the buyer can take the lease into account in their initial offer and you can state that the asking price of the house reflects the leased solar panels. If you don't disclose until after the buyer places their initial offer you are in a very poor negotiating position. A savvy buyer will insist that you buy out the lease because this encumbrance on the house was not disclosed. Of course you can choose to say no and look for another buyer, or the buyer might negotiate with you if they really want the house. I'd do the above whether the house will have 10 offers in 3 days on the market or 1 offer in 6 months. As the seller it helps keep you in control of the pricing by removing uncertainty.

aristotelian
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Re: Contemplating offer on a house with SolarCity lease

Post by aristotelian » Mon Nov 20, 2017 9:51 am

What are the terms that seller has offered? Is the price of the house supposed to include the panels? It is not clear to me that there is an offer on the table.

Soon2BXProgrammer wrote:
Sun Nov 19, 2017 9:38 am
Give the seller these two options and play hardball:

option 1. seller buy lease out and you get solar free without a price adjustment.
option 2. seller takes panels with him and installs you a brand new roof without a price adjustment.

Either way you win.
I would play hard ball right back and reject your offer. Be prepared if that is the response.

Valuethinker
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Re: Contemplating offer on a house with SolarCity lease

Post by Valuethinker » Mon Nov 20, 2017 9:57 am

tmhudg wrote:
Mon Nov 20, 2017 9:07 am
That moment when you wonder if you've made a terrible mistake...

I did the SolarCity thing - but I'm not quite sure if it's the same thing we are talking about here. SolarCity put panels on my roof (I replaced the roof before the panels went on because it was about 20 years old at that point) and I paid nothing for the panels. I now pay SC a reduced rate for the power I get from the panels and pay the electric company the regular rate for the rest of the power I use. I have net metering so the meter runs backwards in the Summer for a few months.

It seemed like a win-win for me at the time and I'm struggling to understand the downside expressed here.

If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?

Is the lease discussed in this thread different than what I have perhaps?
Read the documentation and if unsure of the position have an attorney read it.

Assuming a Lease by the buyer means they assume responsibility for any payments. So:

- under what circumstances would they be forced to pay Solar City (if SC went broke, the bankruptcy administrator would simply continue to collect the payments, and eventually some other entity would become lessor (where homeowner is lessee) ie the lease rights would be sold off to help pay off creditors)?

Examples: at end of lease, if utility payments dropped below lease cost

You could write a sale contract for your house that would include you assuming any financial liability that falls on the new owner.

Alternatively you could, in principle, continue to hold the lease and the new owner has no involvement. Problem with that is they also have no incentive to be efficient about energy use.

If you do sell before the end of the life of the lease I think you are going to have to be flexible on this. New owners may not value it as highly as you do. However it *should* not detract from the value of the house, but it might not add to it.

Valuethinker
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Re: Contemplating offer on a house with SolarCity lease

Post by Valuethinker » Mon Nov 20, 2017 10:01 am

stan1 wrote:
Mon Nov 20, 2017 9:48 am
tmhudg wrote:
Mon Nov 20, 2017 9:07 am
I did the SolarCity thing - but I'm not quite sure if it's the same thing we are talking about here. SolarCity put panels on my roof (I replaced the roof before the panels went on because it was about 20 years old at that point) and I paid nothing for the panels. I now pay SC a reduced rate for the power I get from the panels and pay the electric company the regular rate for the rest of the power I use. I have net metering so the meter runs backwards in the Summer for a few months.

It seemed like a win-win for me at the time and I'm struggling to understand the downside expressed here.

If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?
My recommendation would be to disclose up front in the listing that the solar panels are leased and that the lease conveys to the buyer. That way the buyer can take the lease into account in their initial offer and you can state that the asking price of the house reflects the leased solar panels. If you don't disclose until after the buyer places their initial offer you are in a very poor negotiating position. A savvy buyer will insist that you buy out the lease because this encumbrance on the house was not disclosed. Of course you can choose to say no and look for another buyer, or the buyer might negotiate with you if they really want the house. I'd do the above whether the house will have 10 offers in 3 days on the market or 1 offer in 6 months. As the seller it helps keep you in control of the pricing by removing uncertainty.
I agree with this strategy. Disclose lease & terms up front. The lower electricity bill should be an asset for a buyer. Buyers will factor in their view into their offers.

Markets vary on these things:

- some mkts solar panels might be seen as an asset
- other mkts they are seen neither as an asset to be paid more for nor as a liability
- some they might be seen as a liability, and seller is better to remove

A lot depends on how "hot" the market is. When it is a hot market, concerns like these drop away for a buyer (as long as it does not make house unmortgageable).

Mudpuppy
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Re: Contemplating offer on a house with SolarCity lease

Post by Mudpuppy » Mon Nov 20, 2017 12:58 pm

tmhudg wrote:
Mon Nov 20, 2017 9:07 am
If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?

Is the lease discussed in this thread different than what I have perhaps?
You're asking a potential buyer to assume responsibility for a financial contract that you entered into. To put this in another perspective, if you used a loan to replace the heating and AC system or to upgrade the kitchen, would you ask the buyer to assume the loan and continue paying it off? A new HVAC or an upgraded kitchen provides benefits to the homeowner after all, just like the solar panels do. But no one would think of asking the buyer to take over a home improvement loan, they would just pay it off (hopefully) out of the sales proceeds.

This solar lease is really just a home improvement loan in sheep's clothing, so asking a buyer to assume the solar lease is just as off-putting for many buyers as asking them to take over a home improvement loan would be. When you buy a home, you don't expect to be taking over the seller's financial loans for the home.

Snezz1e
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Re: Contemplating offer on a house with SolarCity lease

Post by Snezz1e » Mon Nov 20, 2017 1:45 pm

Is this a lease or power purchase agreement. You have to be careful with PPA. I looked into them when I was deciding who to get solar from. These agreements usually have a high inflation factor. For Nevada, cost per kwh has actually gone done for some years due to their switch to lower cost natural gas and more recently have been somewhat flat. Depending on the inflation amount they use you could find yourself paying more for the power the panel is generating vs. what you would be paying your utility company towards the end of the agreement.

mouses
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Re: Contemplating offer on a house with SolarCity lease

Post by mouses » Mon Nov 20, 2017 1:58 pm

Lyonsguy wrote:
Sun Nov 19, 2017 6:38 pm
A friend of mine is very displeased with the lease on his solar - the first year was great as the lease was 20$ but it saved 50$ of electricity a month. But the price/mo th has gone up every year so now the payoff is so much smaller. The lease agreement may likely be locked in, but that is another thing to consider
The price of the lease has gone up every year? I assume that is in the contract, and so not a surprise?

motorcyclesarecool
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Re: Contemplating offer on a house with SolarCity lease

Post by motorcyclesarecool » Tue Nov 21, 2017 6:00 am

tmhudg wrote:
Mon Nov 20, 2017 9:07 am
That moment when you wonder if you've made a terrible mistake...

I did the SolarCity thing - but I'm not quite sure if it's the same thing we are talking about here. SolarCity put panels on my roof (I replaced the roof before the panels went on because it was about 20 years old at that point) and I paid nothing for the panels. I now pay SC a reduced rate for the power I get from the panels and pay the electric company the regular rate for the rest of the power I use. I have net metering so the meter runs backwards in the Summer for a few months.

It seemed like a win-win for me at the time and I'm struggling to understand the downside expressed here.

If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?

Is the lease discussed in this thread different than what I have perhaps?
The seller sent her copy of the lease. It was a $0 down and $0 fixed fee per month, however, the lessee agrees to buy all the power that SC's array produces, at a rate of 14.9¢ per kWh. Our local utility recently restructured its tariffs. They now charge 14.840¢ per kWh plus 43.3¢ per day for access to the grid. The lessee is now getting hosed. Add to this, a 2.9% annual increase in the kWh rate charged by SolarCity. Every year. With 19 years left on the lease. I could live with this maybe if I wanted solar for the sake of solar. There might be folks in the market who would take this on. But if I'm buying a house with a system, I want it to be free and clear of this sort of encumbrance.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

tmhudg
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Re: Contemplating offer on a house with SolarCity lease

Post by tmhudg » Tue Nov 21, 2017 10:25 am

motorcyclesarecool wrote:
Tue Nov 21, 2017 6:00 am
tmhudg wrote:
Mon Nov 20, 2017 9:07 am
That moment when you wonder if you've made a terrible mistake...

I did the SolarCity thing - but I'm not quite sure if it's the same thing we are talking about here. SolarCity put panels on my roof (I replaced the roof before the panels went on because it was about 20 years old at that point) and I paid nothing for the panels. I now pay SC a reduced rate for the power I get from the panels and pay the electric company the regular rate for the rest of the power I use. I have net metering so the meter runs backwards in the Summer for a few months.

It seemed like a win-win for me at the time and I'm struggling to understand the downside expressed here.

If I wanted to sell my house, the prospective buyer wouldn't have to "do" anything. He would just continue to use the panels and pay a slightly less overall cost for his power. He would "assume the lease" I guess but it wouldn't cost him anything. Why would he balk?

Is the lease discussed in this thread different than what I have perhaps?
The seller sent her copy of the lease. It was a $0 down and $0 fixed fee per month, however, the lessee agrees to buy all the power that SC's array produces, at a rate of 14.9¢ per kWh. Our local utility recently restructured its tariffs. They now charge 14.840¢ per kWh plus 43.3¢ per day for access to the grid. The lessee is now getting hosed. Add to this, a 2.9% annual increase in the kWh rate charged by SolarCity. Every year. With 19 years left on the lease. I could live with this maybe if I wanted solar for the sake of solar. There might be folks in the market who would take this on. But if I'm buying a house with a system, I want it to be free and clear of this sort of encumbrance.
Thanks for this perspective.

aristotelian
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Re: Contemplating offer on a house with SolarCity lease

Post by aristotelian » Tue Nov 21, 2017 10:53 am

motorcyclesarecool wrote:
Tue Nov 21, 2017 6:00 am
The seller sent her copy of the lease. It was a $0 down and $0 fixed fee per month, however, the lessee agrees to buy all the power that SC's array produces, at a rate of 14.9¢ per kWh. Our local utility recently restructured its tariffs. They now charge 14.840¢ per kWh plus 43.3¢ per day for access to the grid. The lessee is now getting hosed. Add to this, a 2.9% annual increase in the kWh rate charged by SolarCity. Every year. With 19 years left on the lease. I could live with this maybe if I wanted solar for the sake of solar. There might be folks in the market who would take this on. But if I'm buying a house with a system, I want it to be free and clear of this sort of encumbrance.
How does it work when your excess electricity goes back into the grid? Do you get that money back? In that case, you might be saving money vs the utility even if your kWh are more expensive. Also what happens when the lease is up? Are the panels yours free and clear? Could still be a good investment.

aristotelian
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Re: Contemplating offer on a house with SolarCity lease

Post by aristotelian » Tue Nov 21, 2017 11:24 am

Mudpuppy wrote:
Mon Nov 20, 2017 12:58 pm
You're asking a potential buyer to assume responsibility for a financial contract that you entered into. To put this in another perspective, if you used a loan to replace the heating and AC system or to upgrade the kitchen, would you ask the buyer to assume the loan and continue paying it off? A new HVAC or an upgraded kitchen provides benefits to the homeowner after all, just like the solar panels do. But no one would think of asking the buyer to take over a home improvement loan, they would just pay it off (hopefully) out of the sales proceeds.

This solar lease is really just a home improvement loan in sheep's clothing, so asking a buyer to assume the solar lease is just as off-putting for many buyers as asking them to take over a home improvement loan would be. When you buy a home, you don't expect to be taking over the seller's financial loans for the home.
A new HVAC or kitchen does not replace ongoing utility costs. Those are typically systems that you expect to have in working order when you purchase a house. If I see a house with big solar panels on the roof, I would not be surprised if the seller has some expectation of working something out with the buyer.

Mudpuppy
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Re: Contemplating offer on a house with SolarCity lease

Post by Mudpuppy » Tue Nov 21, 2017 11:57 am

aristotelian wrote:
Tue Nov 21, 2017 11:24 am
Mudpuppy wrote:
Mon Nov 20, 2017 12:58 pm
You're asking a potential buyer to assume responsibility for a financial contract that you entered into. To put this in another perspective, if you used a loan to replace the heating and AC system or to upgrade the kitchen, would you ask the buyer to assume the loan and continue paying it off? A new HVAC or an upgraded kitchen provides benefits to the homeowner after all, just like the solar panels do. But no one would think of asking the buyer to take over a home improvement loan, they would just pay it off (hopefully) out of the sales proceeds.

This solar lease is really just a home improvement loan in sheep's clothing, so asking a buyer to assume the solar lease is just as off-putting for many buyers as asking them to take over a home improvement loan would be. When you buy a home, you don't expect to be taking over the seller's financial loans for the home.
A new HVAC or kitchen does not replace ongoing utility costs. Those are typically systems that you expect to have in working order when you purchase a house. If I see a house with big solar panels on the roof, I would not be surprised if the seller has some expectation of working something out with the buyer.
A new HVAC system and more energy-efficient kitchen appliances (particularly the fridge and oven) can save drastically on utility costs. Solar panels offset energy, but energy-efficient upgrades save energy. In both scenarios, you're still asking a potential buyer to assume financial responsibility for a financial contract you entered into. It doesn't get magically different just because they're solar panels.

As an aside, solar panels are actually troublesome to the electric grid because they have very periodic output, depending on the amount of sunlight hitting the panels. The electric grid likes to be balanced, with generation matching demand. An uncontrolled imbalance can send the grid offline. A partially cloudy day is a pain for the grid to manage if there is too much solar generation on a segment. Not impossible, but really a pain. Wind is much more consistent in power output and much kinder on the grid, but it isn't as pretty to look at, so you rarely see home power-generating windmills unless you're at a real eco-friendly household.

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Re: Contemplating offer on a house with SolarCity lease

Post by Mudpuppy » Tue Nov 21, 2017 11:59 am

motorcyclesarecool wrote:
Tue Nov 21, 2017 6:00 am
The seller sent her copy of the lease. It was a $0 down and $0 fixed fee per month, however, the lessee agrees to buy all the power that SC's array produces, at a rate of 14.9¢ per kWh. Our local utility recently restructured its tariffs. They now charge 14.840¢ per kWh plus 43.3¢ per day for access to the grid. The lessee is now getting hosed. Add to this, a 2.9% annual increase in the kWh rate charged by SolarCity. Every year. With 19 years left on the lease. I could live with this maybe if I wanted solar for the sake of solar. There might be folks in the market who would take this on. But if I'm buying a house with a system, I want it to be free and clear of this sort of encumbrance.
With this information, I would insist on the seller buying out the lease or move on to another house. It might work out in your favor if the panels consistently produce more power than you consume during daylight hours, but the margins will quickly become razor-thin as time goes on and those automatic annual increases accumulate.

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