Is Green Energy always the best option?
Is Green Energy always the best option? Check with your mortgage lender first!
While the UK may not be the sunniest place on the planet, nevertheless over the past few years there has been a significant rise in the number of homes across the country whose roofs are now sporting solar (or ‘photovoltaic’) panels. This is often seen as a means of reducing annual energy bills, and even potentially earning extra money by selling any surplus electricity back to the National Grid, and has become increasingly popular as a result of the Government’s drive since 2010 to incentivise small-scale low-carbon electricity generation schemes.
The installation of solar panels on the roof does not normally require planning permission (unless the area already has planning restrictions in place – eg a conservation area or area of outstanding natural beauty). But it will almost always require building regulations consent and, in some cases – especially with older houses, homeowners may need to pay for preliminary building work to strengthen the roof structure before it can bear the extra weight.
There are two main ways to obtain roof-based solar panels: buying the equipment outright from the provider, or leasing the roof/airspace to the provider.
The first should create few additional problems for homeowners other than the initial outlay of, typically, anything from £6,000 to £12,000 to buy the panels and associated equipment and have them installed. In addition to getting free electricity thereafter, depending on the size and capacity of the installation the homeowner may also benefit from the ‘feed in tariff (FIT)’, which is the rate paid for any surplus energy generated and sold back to the electricity company.
Those people whose property is still mortgaged should ideally seek the consent of their mortgage lender before doing this. However, if the panels are to be purchased outright and the provider is properly accredited and complies with all relevant regulations the value of the home in the eyes of potential future buyers may well increase, so the current lender is likely to have little reason to object.
The second method, however, can lead to a range of problems – yet this so-called ‘free solar panels’ option has proved to be the more popular one for most homeowners as there is no up-front cost. In this case, the homeowner does not own the solar panels and thus does not benefit from payments under the FIT, which go instead to the provider of the panels; however, the homeowner will get free electricity in return for the use of their roof and airspace. The last few words point to the initial problem: the panel provider takes a lease of the airspace above the roof – usually for a minimum of 20-25 years and at a nil/peppercorn rent. For those who own their home outright this is a matter for them alone (though see below for issues to consider), but in this case it is essential that those with mortgages first get the consent of their lender.
The Council of Mortgage Lenders (CML), in a joint venture with the Building Societies Association (BSA), has produced guidance on lenders’ general minimum requirements in this regard which is available on the CML website (www.cml.org.uk). In addition, some lenders may have further conditions to be satisfied before granting consent, so a preliminary discussion should always be held with your particular lender before making any initial arrangements regarding solar panels.
But even mortgage-free homeowners may still face problems further down the line, when they wish to carry out roof repairs, or when they come to sell their property to someone who needs a mortgage loan in order to buy it. The so-called ‘free’ solar panel schemes do vary from provider to provider but if you are considering that option rather than buying the panels outright at the start, you should definitely seek legal advice on the implications and the terms of the proposed lease before signing any agreement with the provider.
The CML and BSA guidance requires the provider to show a number of things before a lender will even consider granting its consent to the lease:
- Evidence of accreditation showing that the panels and installation will meet certain standards – this can be satisfied if the provider is accredited by the Microgeneration Certification Scheme (MCS);
- Evidence that the relevant Code of Practice will be followed;
- Evidence of contracting out of the security of tenure provisions in the Landlord & Tenant Act 1954;
- A signed letter (template available on both CML and BSA websites) from the provider that they satisfy the lender’s minimum requirements;
- A copy of the proposed lease;
- Signed authorisation from the borrower (homeowner) for the provider to contact the lender directly;
- Contact details of the provider.
Even those without mortgages may wish to follow these guidelines, as having proof that the installation complied with them may assist when selling the property in the future with the panels already in place. If the buyer’s mortgage lender is not satisfied that its minimum requirements regarding such leases have been met, it will refuse to lend and the property then becomes unmortgageable. Remember, the lease taken by the solar panel provider will usually be for some 20-25 years, so it is quite possible that you may wish to sell the property before its term expires! Restricting your pool of prospective future buyers to those able to pay cash is a short-sighted option considering the relatively small benefits of reduced energy costs in the meantime.
To sum up, there are some obvious advantages to having solar panels – cheaper energy costs, the satisfaction of ‘doing your bit’ for the environment, and potentially even an additional income being the main ones. But there are also pitfalls and issues that require serious thought and, especially for mortgage-payers and those who may wish to sell their home in the next couple of decades, proper legal advice on the implications of the proposed deal should be sought before entering into any arrangement with the salesperson.
The above is merely a general outline and does not cover all the issues a legal adviser would consider. It is not intended as a substitute for proper legal advice on this topic and should not be relied on as such. If you are considering solar energy options, we can help and please contact Diane or any member of the conveyancing team.