Free solar panels may look green, but will they make your mortgage lender see red?

Homeowners looking to reduce their electricity bills may be tempted by offers of free solar panels. But before signing up to any such offer, property owners should think twice, otherwise they could be in serious trouble with their mortgage lender – and also find it difficult to sell in the future.

These schemes look very tempting, offering the inducements of free installation and free electricity. However there is a catch, namely that the company will require a lease of your roof for 20 or 25 years.

Solar panels for producing electricity (technically called Photovoltaic or PV cells which convert sunlight into electricity) have become popular after the government introduced its ‘feed in tariff’ (FIT) scheme. This offers guaranteed cash payments to households who produce their own electricity at home using renewable technologies.

Companies who offer to provide free panels will collect the payments from the government. In return the householder gets the benefit of the electricity produced by the panels.

How ‘rent-a-roof’ solar panel schemes work

In order to recover the cost of the panels and their installation, companies require homeowners to grant them important rights over the property. They will want an exclusive lease of the roof for a long period, usually 20 or 25 years –this is often called 'rent-a-roof'. Owners must therefore consider not only what cost benefits the panels will have, but also the long-term effects on their property ownership.

Leases affect property titles, and will be binding on any future buyers. Not only will they be registered at the Land Registry, but if certain rules are not followed such leases will be business leases which give tenants (i.e. the installation company) rights of renewal.  

Mortgage lenders consent must be obtained before signing 

Owners who have a mortgage on their property must obtain consent from their lender before installation starts. Signing a contract with an installation company without a lender’s consent may be a breach of the mortgage terms and conditions.

Which magazine recommends that homeowners get independent legal advice on the details of the contract before signing anything. The following questions should be considered:

 

  • who will own the system?
  • who is responsible for getting any consents e.g. planning or building regulations?
  • what access rights will the installation company have?
  • what happens if the homeowner wants to end the contract early?
  • who is liable for damage to the property or the system?
  • who pays for insurance, upkeep and repairs?
  • what happens if the homeowner wants to move?

 

The Council of Mortgage Lenders (CML), which represents most lenders, says:

“We advise borrowers to follow our guidance – and to seek consent from their lender – before agreeing to lease their roof space for solar panels. Lease agreements can last for up to 25 years, and may create problems if the borrower needs to sell before then. Our guidance covers things like ensuring that panels are properly installed and maintained, and that all the necessary permissions have been obtained. It protects the interests of both borrowers and lenders, and should ensure that leasing roof space for solar panels does not inhibit the sale of the property. ”

Lenders will be concerned if installations come with a requirement to cover maintenance costs, grant onerous access rights to the provider, contain a requirement to leave the system ‘switched on’ in the event of repossession or other obligations that may impair the marketing of the property.

Rent-a-roof leases will affect future property sales

Even if an owner does not have a mortgage, they should think twice before signing up to a deal. Any future buyer will be bound by a lease, so owners will need to consider whether the future saleability (and therefore value) of the property will be affected.  

Some mortgage lenders now require mortgage applicants to provide full details of any existing solar panels, including lease arrangements. Mortgage brokers report that some recent applications may have been turned down due to the existence of such a lease. If this happens frequently then buyers may be put off buying properties with solar panels.

All owners should consider the effect a lease of the roof will have on their use of the property. For instance the panels will restrict further building work affecting the roof –such as replacing a worn-out roof or creating a roof extension.  

If panels do have to be removed for a period, such as to do maintenance work on the roof, the company’s consent will have to be obtained. The owner will also have to compensate the company for the missed feed-in tariff payments.

Lease contracts can also require householders to get consent if they want to sell their house. Although it is unlikely that the company could prevent a sale, they could delay it being completed. And potential buyers are likely to be put off if there are difficulties in getting consent.  

The CML warns homeowners that it does not grant approvals to the installation of PV panels, and claims by installation firms that their schemes are “CML approved” should be ignored. For more advice from the CML and the Building Societies Association see http://www.cml.org.uk/cml/policy/issues/6229.

 


by admin
Monday 14th of September 2015 09:34:29 PM