Selling a Maryland house with leased solar panels: the UCC filing on your title, the lease transfer, and the buyout math

Rooftop solar spread across Maryland subdivisions over the last decade, from Columbia and Ellicott City to Waldorf, Bowie and Frederick, and a large share of it was sold at the front door as a lease or a power purchase agreement rather than a purchase. The panels themselves rarely cause trouble in a sale. The contract behind them does. A title company finds a filing it has to clear, a retail buyer is asked to take on a twenty year payment, and a lender gives the system no value. This is what each of those problems looks like and the three ways a solar lease actually gets resolved at closing.

First find out what you actually have

Solar on a Maryland roof comes in three forms, and sellers are often not sure which one they signed. If you paid cash or the system was financed through a home equity loan, you own the panels. They are part of the house, they transfer with the deed, and you keep selling the solar renewable energy credits the system earns until the day you close. If you took a solar loan from the installer or a lender it works with, you own the panels but the lender may hold a recorded interest in them, and the balance is paid at closing like a second mortgage unless the buyer is approved to assume it. If you signed a lease or a power purchase agreement, the solar company owns the panels. You pay a fixed monthly amount under a lease, or a per kilowatt hour rate under a power purchase agreement, for a term that commonly runs twenty or twenty five years, with a payment that often steps up every year by a percentage written into the contract. The company keeps the renewable energy credits and the federal tax credit.

The UCC filing on your title

When a solar company leases you a system, it records a UCC-1 fixture filing in the land records of the county where the house sits. Maryland’s version of Article 9 of the Uniform Commercial Code, at Sections 9-501 and 9-502 of the Commercial Law Article, is what lets a company file a notice against real property for equipment bolted to it. The filing tells the world the panels belong to the company and not to whoever owns the roof. It is not a lien on the house the way a mortgage is. A title company will still not insure a buyer’s title with the filing sitting there unexplained, and a buyer’s lender will not close over it.

The filing gets cleared one of three ways. If you buy the system out, the company files a UCC-3 termination and the record is gone. If the buyer takes over the lease, the company signs transfer paperwork and, for the lender, a letter acknowledging that the panels are personal property and that it will not claim the house itself if payments stop. The third way, removing the system, is covered below.

Transferring the lease to a buyer

The lease has a transfer section. Read it before you list, because it sets the notice period and the process. The buyer applies with the solar company, usually online, and passes a credit check against a minimum score the company sets. The buyer then signs a transfer agreement that puts them in your place for the remaining term, and the company confirms the transfer to the title company.

The friction is the buyer, not the paperwork. A buyer financing the purchase learns from the appraiser that leased panels add nothing to the appraised value under Fannie Mae’s rules, and then learns from the lease that they are inheriting a payment with an escalator for the next fifteen years. Some buyers want the panels. Many ask for a price cut equal to the payments, or ask you to buy the lease out before closing. Our article on choosing a cash buyer covers how to compare that kind of request against a flat as-is number.

Buying out the lease

Every lease we have read has a buyout schedule, and most of them do not allow a buyout at all until a set year has passed. After that date the schedule gives a price for each year, and the company will quote the current figure on request. The buyout is paid from your proceeds on the settlement statement, the company files the UCC-3, and the buyer receives owned panels with no payment attached. In a retail sale an owned system can carry some appraised value, so part of the buyout comes back to you in price. Our seller closing costs article shows where a buyout sits on the statement next to the other payoffs.

Removal, the last resort

Leases also price removal. The company takes the panels, racks and inverter, patches the roof penetrations to the standard in the contract, and bills you the removal figure plus, in many contracts, the remaining payments. It is the most expensive way out and it leaves you with a roof full of patched holes. It makes sense only when a buyer refuses the lease, the buyout window has not opened, and no other buyer is in the picture.

Maryland specifics worth knowing

A homeowners association cannot prohibit solar panels in Maryland. Section 2-119 of the Real Property Article limits an association to reasonable restrictions on placement, so the buyer cannot be made to remove the system by the HOA, and the association’s resale packet should not list it as a violation. Our resale packet article covers what that packet does contain. On the utility side, your BGE, Pepco, Potomac Edison, Delmarva or SMECO account carries the net metering agreement, and the utility pays out any banked excess generation once a year after the April billing cycle. The buyer opens a new account at closing and the banked credit does not move with the house. If you own the system, the registration that lets you sell renewable energy credits also has to be moved to the buyer’s name, which is a form with the tracking system, not a title company task.

Maryland’s seller disclosure form asks about encumbrances and known conditions. Whether or not the current form has a line for solar, a recorded fixture filing and a contract that binds the next owner are things a buyer learns about before signing or sues about after. Disclose the lease, attach it, and let the buyer read it.

Selling as-is with the lease on it

We buy houses with solar leases the way we buy houses with a tenant or a ground rent: we read the contract first and price what it means. Send us the address and the lease. We decide within a day whether we want to take the lease over, which we do when the payment makes sense against what the system produces, or price the buyout into the offer and pay the company from proceeds at closing. Either way you see the math against a listing in writing. We request the transfer or buyout figures from the solar company the day the contract is signed, because that response time, not the title work, sets the date. A licensed Maryland title company handles settlement, and two to three weeks is typical when the company answers promptly. The as-is page covers everything else about the house, which you do not need to touch.

Leased panels are a contract on the roof. Find the lease, find the buyout schedule, and decide whether you want to recruit a buyer who will take the payment or make the payment go away. Both paths close. One of them depends on a stranger’s credit score.