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What’s the Latest With Solar Energy and Title Insurance?
By Barbara Pronin
As more and more states, local governments, and consumers ponder the use and benefits of solar energy, new questions are arising - including questions about what title actions need to be taken with regard to solar projects. First, let’s look at the difference between solar easements and solar leases.
Solar easements, like all property rights granted by the homeowner to a third party, allow a third party to construct solar panels on a landowner’s property for their access and/or use and bar the landowner from blocking their access to direct sunlight. Some states have legally permitted the creation of solar easements. In such cases, title insurance becomes a critical tool for establishing and enforcing them.
Solar leases, on the other hand, present different complications with regard to title insurance. People who install solar panels on their home early in 2022 will still qualify for California’s current Net Energy Metering (NEM) 2.0, but sometime in May or June, all new residential systems will fall under NEM 3.0. Since the property owner leases solar equipment from a business and attaches it to the property, when the owner wishes to sell or refinance the property, one of two issues may arise:
  • The first surrounds the leasing contract, which often states that property transfers are contingent on the buyer being eligible to continue with the leased equipment. If the buyer is not approved, the owner must buy the panels from the leasing company. (Smart property owners can avoid this issue by insisting this provision be left out of the leasing contract.)
  • The second arises around financing - in particular, Uniform Commercial Code (UCC) financing statements, which solar companies attach to properties under solar leases. When an owner attempts to sell or refinance, the lender discovers the UCC financing statement during the title search. Sometimes, the lender may see the UCC financing as having a superior lien to mortgage and deny the financing, effectively denying the property owner’s right to convey the property. A few solutions, however, can help property owners combat the challenge:
  • First, the owner can inform the solar company of their intention to sell or refinance. The solar company can then subordinate the UCC filing to the mortgage - or terminate the filing and reinstate it after the new mortgage has been recorded. If the solar company will not agree to either option, title insurance may be obtained to overcome the lender’s concerns.
  • If the solar panels are considered personal property, they bring no added value to the property itself. But if they are considered a fixture, they may affect the property value. This decision may best be determined by an agreement between the homeowner and the solar leasing company. Then it becomes the job of title agents to accurately interpret the agreement for the purpose of documentation and recording.
 Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade.

This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. The material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. 

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