Philip Santo, a chartered surveyor and director of Philip Santo & Co, considers some implications of the recent rush to install solar panels on the roofs of the nation's houses.
Selling the solar cells
No-one can have failed to notice the rash of photovoltaic (PV) or solar panels that has spread across the nation's roof slopes over the last couple of years. Householders have been embarking on subsidised solar energy generation, tempted by the promise of long-term free electricity and, in some cases, by an income from selling spare electricity to the nation's power companies. What could go wrong?
Well, plenty can go wrong, is the simple answer. The technology itself is sound and durable but some installations will not be as productive as hoped due to basic matters such as geographical location or orientation. And in the coming years some unfortunate owners are likely to find that their houses have been rendered unmortgageable by their venture into green energy.
Owned or leased?
Some home-owners have paid outright for the panels and their installation, with a typical cost of £10-12,000. They benefit from the free electricity generated and additionally sell the surplus to the national electricity suppliers under a system of Feed In Tariffs (FITs). This might save £500 annually on the domestic energy bill and, under the initial higher tariff - which has since been significantly reduced - could produce an income of perhaps £1,000 per year. Clearly this is not a bad return on the initial investment.
The majority of owners, however, have opted for a cheaper method, avoiding the expense of the initial investment but arguably having more potential drawbacks in the longer term. Here the PV panel providers retain ownership of the panels and take a lease, usually for 25 years, on the roof and airspace above. They install the panels for free and provide free electricity to the home-owner, but retain the income from the FITs payment for themselves. The attraction to the home-owner is obvious: free electricity for the long term and at no cost.
A 25 year lease of a roof is technically no different from leasing part of the garden, or even part of the house itself. It may be less intrusive on a day-to-day basis - not many people want to sit on the roof after all - but the legal commitment is no different.
More seriously there may be implications for maintenance of the installation or of the roof covering itself. It is far from unusual for the roof of an older property to require periodic maintenance during a 25 year period, and even complete recovering could be necessary in some cases. Does the lease agreement clearly set out the responsibilities for removing the solar panels while works are carried out?
Impact on marketability
Research late last year showed that nearly half of all lenders expected PV panels to affect the marketability of a property, not least due to their negative impact on 'kerb appeal'.
Some solar panel installations are more intrusive than others and could deter potential purchasers.
These reservations are shared by many valuers who are waiting for the housing market to demonstrate through transactions whether buyers will pay more for houses with PV panels, because of the savings on energy costs, or less because of the visual and legal drawbacks.
The maintenance issues are more straightforward if the PV panels are owned outright because all of the responsibilities simply fall on the homeowner. But this doesn't avoid the problems which may arise on resale if a potential purchaser doesn't want to take over the PV panels and the lease arrangement.
There will inevitably be costs associated with prematurely terminating a lease. Who will bear these costs: the vendor or the purchaser? And what impact will these have on value or saleability? And this assumes that a panel provider is willing to end a lease. At least one provider has expressed the view that if a potential house purchaser doesn't want PV panels then they should buy a different house.
The Microgeneration Certification Scheme (MCS) has become the de facto installation standard and installations outside the MCS are unacceptable to most lenders. Additionally, only MCS installations are eligible for FITs payments so the financial benefits for non-MCS installations are much lower, as well as having questions over their acceptability for mortgages.
FITs went live on 1 April 2010 but it wasn't until October 2011 that the CML and BSA agreed guidance for their respective members. This included a template letter outlining the main points which should be addressed prior to installation. This ensures that responsibilities for obtaining all necessary permissions and consents, and for dealing with matters such as insurance and maintenance, are clearly spelled out.
Crucially, from a lender perspective, there is also a requirement that a lender will have the right to break the lease and have the PV panels removed if they are adversely affecting the sale of a property in possession.
Most contracts concluded since the CML/BSA guidance was issued should cover all of these important matters but it is likely that some homeowners who signed contracts before then may have agreed terms which are not acceptable to lenders and their properties may potentially be unmortgageable. A copy of this template letter is available on the CML website.
Even when the legal aspects of the arrangement have been properly dealt with there are still the practical implications of having the PV panels installed on the roof and then remaining there for the whole of the 25 year lease term. Individual panels aren't particularly heavy but the total additional loading may be significant, especially on roofs with lightweight coverings. Building Regulations approval is required if the panels will add more than a third to the weight of the existing roof covering so a proper initial assessment is critical.
The nature of the installation process means that a degree of damage to the roof covering is almost inevitable. Installing the panel fixings usually involves exposing the supporting structure beneath the existing roof covering. Avoiding any damage during this work is difficult, so completing effective repairs should be a standard part of the installation process.
Installations are much more difficult with some coverings, such as slates, than others. Was any damage properly repaired? Is the roof still completely watertight? Checking these details is far beyond the scope of a mortgage valuation inspection so a detailed inspection will be necessary to answer these questions. Purchasers of properties where panels have already been installed now have an additional reason to commission a private pre-purchase survey.
The solar PV panels themselves are actually a proven and reliable technology but it is still too early to assess their impact on the UK property market. They will clearly be with us for many years to come and maybe they will eventually be regarded as a desirable asset rather than a blot on the landscape.
Until the dust settles however, legal advisors, mortgage valuers and surveyors will understandably be cautious in their appraisal of these installations and their long term implications. The financial benefits may be tempting for home-owners but the priority for their professional advisors at present will probably be to ensure that their clients do not unwittingly become entangled in any arrangement which is likely to have a long term adverse impact on their most valuable asset, their home.
If you would like to contact Philip Santo please email him at firstname.lastname@example.org.