What a buyer should ask before taking over a solar lease or PPA

Taking over a solar contract means agreeing to terms someone else negotiated, sometimes years ago. Some cost less than the utility would, and some cost more. A few questions show where a contract falls.

Start with the actual contract

Ask for the full signed agreement, not a one-page summary or the seller's description. Everything below comes from what is written in it. If the seller can't produce it, ask the company that services the account for a copy before you commit.

Also ask for the last twelve months of utility bills and, if available, the system's production history. Those show how the system is actually performing, not how it was projected to perform.

1. What is the rate, and how fast does it rise?

A lease has a fixed monthly payment. A PPA has a price per kilowatt-hour for the power the system produces. Either way, find the current number and the annual escalator.

Escalators are commonly in the range of 0 to about 3 percent a year, and some older agreements run higher. It sounds small, but it compounds. Over the remaining term, a 3 percent escalator can push the payment well above where it started.

Then compare that path to your utility. Look at what the utility charges per kilowatt-hour today and how its rates have moved over the past several years. Your utility or state utility commission can usually tell you. If the solar rate is climbing faster than the utility's, the savings shrink each year and can eventually turn negative.

2. How many years are left?

Most leases and PPAs run 20 to 25 years. Work out exactly how many remain from the start date in the contract, not from when the seller bought the house. Ten years left is a very different commitment from twenty.

3. Is there a production guarantee?

Many agreements promise the system will produce a minimum amount of power, and compensate the homeowner if it falls short. Read how it works: what the guaranteed amount is, how shortfalls are measured, and how and when you get paid.

Some mortgage guidelines look at this too. Fannie Mae, for example, treats lease payments differently for qualifying purposes when the agreement includes a production guarantee. Ask your loan officer whether the terms of this contract affect your loan.

4. What warranties exist, and do they transfer?

With a leased system, the owner is usually responsible for maintenance and repairs. Confirm that in writing. Then check the details:

• What is covered: panels, inverters, monitoring, roof penetrations?
• For how long, and does coverage continue for a new homeowner?
• Who pays for labor, not just parts?

Most lease and PPA obligations pass to the buyer along with the benefits, but don't assume. Look for language that says the warranties and service obligations stay in place after a transfer.

5. Who services it now?

The company that installed the system may not be the company you'll call when something breaks. Solar agreements are often sold or transferred to other companies, and installers sometimes go out of business. Find out who holds and services the contract today, how to reach them, and whether they have a working process for service calls in your area.

A contract is only as useful as the company standing behind it. If the seller has had trouble getting repairs done, ask about it.

6. What happens if the roof needs work?

Panels have to come off for a roof replacement and most major roof repairs. Read the clause that covers this:

• Who removes and reinstalls the system, and who pays?
• How much notice is required, and how long does it take?
• Do you owe payments while the system is off the roof?
• Who is responsible for leaks at the mounting points?

Look at the age and condition of the roof under the panels too. A home inspector can flag a roof that will need replacing before the contract ends. That's a cost worth pricing in now.

7. What happens at the end of the term?

Common options at the end of a lease or PPA include renewing, buying the system at fair market value, or having the provider remove it. Check which options your contract actually offers, how fair market value is determined, and whether removal is at the provider's cost.

Ask also whether an early buyout is allowed, and at what price. If you ever want to sell the home to someone who doesn't want the contract, that number matters.

Before you sign off

You'll typically need to apply with the solar provider and pass a credit check before the transfer is approved. Start that application early, alongside your mortgage. If the contract terms aren't favorable, you can raise it in negotiation. Some buyers ask the seller to buy out the system or offer a credit.

You can grade the existing agreement on RateMySolar. It checks the rate, escalator, and terms against realistic production and utility pricing, so you know what you're taking over before you commit to it.