how to negotiate with seller regarding solar roof with lease?

Question

Dear all,I am recently trying to buy a house as rental property. The house has one issue: it has a solar roof still in lease and the seller wants the buyer to take over the lease. We need to repair/replace the roof and we actually don't need the roof since tenants will be paying for utilities. However the total cost of removing the roof and paying off the lease will be around 40k, and the seller doesn't really want to accommodate it or lower 40k asking price. I wonder in this scenario, are there any creative strategies to negotiate the seller? Thanks,Yiming

Thomas S. · Answer

Solar can be a major PITA when it comes to selling and having to replace a roof. You would be much farther ahead to simply lower your offer by 40K and walk if he does not agree. The seller is in a difficult position and is not going to be able to sell at his price. You will need to try and get your agent to convince his agent that he is dreaming in technicolour until he resolves this solar issue. This is going to be a growing real estate issue in CA when all the roofs age to the point of needing to be replaced. I would avoid properties with solar especially where tenants pay for utilities. No logic in solar at all in those situations.

Chaz Mathias · Answer

Hi @Yiming Li we have a solar company here in CA so hopefully I can provide some information to help. Although solar may not be ideal for your situation, it could have some benefits, although I will admit a leased system is not usually the best choice. Here is the question... do they own the system on a loan or are they leasing it through the solar company, there's a big difference. If the solar company leased them the system, they got the tax benefits and you will not own the system. Either way, you will probably be liable for removing and reinstalling the system during the reroof. I would ask the seller at a minimum to credit this amount to you. You could then charge your tenant a fixed or variable fee each month as the solar is providing a benefit to them. Be careful, with some of the new rules, especially in California, you can't just move these systems, there are new equipment requirements for systems installed in new locations and if it is leased through the solar company, again you don't own the system.

Yiming Li · Answer

Thanks for everyone who replied my post, I ended up not putting an offer for the house because the seller insists we take over the loan and it's so great amount. Really appreciate everyone's feedback!

Ramon Grullon · Answer

@Yiming Li - if you take over the lease, you should only pay for consumption. I charge my tenants about $20 extra a month for that convinience and they are still paying a lot less than what they would be paying with the electric company. WIN-WIN!!! Hope that helps.

Thomas N. · Answer

@Thomas S. I agree. Solar panels are no benefits when tenant pays for electric bill. I just walked away from a deal because seller backed out on transferring the solar panels to her new house once she found out how much it would cost her. Had to eat the inspection report cost.

Christopher Crean · Answer

@Yiming Li Contact the solar company. When I was looking at leasing (I ended up buying instead) they told me that if there was ever a time the roof needed to be replaced, they would come out and take the panels down for the work to be done, then put them back up for a nominal fee. Maybe $500-$2000 depending on the system. Perhaps you can negotiate the cost of that into the deal with seller

Charlie MacPherson · Answer

@Yiming Li It wasn't necessarily a bad deal for seller. Solar panels can add up, depending on how big the systems is and how it's designed.I have one (owned, not leased) on a barn 300' from my house. 48 panels, 13 KWp. Including the 300' trench, it was about $52,000 installed and $36,000 after state rebates.As far as your approach, you have to recognize that the solar leasing company has a lien on the property for the value of their equipment. When you buy the property, there are really two choices - assume the lease or pay it off.If you assume the lease, you will provide somewhat less expensive electricity to your tenants - which they may or may not be willing to pay for. Around here, the difference is a few cents per KWh - YMMV.If you pay off the lease, you can leave the panels in place with the "benefits" as described above, or you can relocate them to a different property - maybe your own home, where you may now be able to get some amount of free electricity - though installation will not be free. The seller doesn't have any way to discount the payoff, except by taking less for the sale of the home and eating the loss.The leasing company has zero motivation to discount either the payoff or the assumed lease, because they have an enforceable contract and lien on the property.

Yiming Li · Answer

Hi @Andrew Smith, thanks a lot for response. I am not sure about the seller's motives, but I guess they were probably got a wrong deal or fooled by salesman.

Andrew Smith · Answer

Hi @Yiming Li How old is the lease? I would negotiate a purchase price with the seller that would be a (low) percentage of the $40K owed. You'd then own the system and add value to the home (leased systems do not).It's hard to imagine how $40K is still owed on a lease if it's been in place for a while and if it's new, why the heck would they add solar to a roof that needed replacing? (another negotiating point).