Listing Before Permission to Operate: Selling an Unswitched System

A Claremont homeowner signs a solar contract, the crew installs the array, and then life changes and the house goes on the market before the system has ever produced a kilowatt.

The panels are up. The inspection may or may not have happened. The utility has not yet given permission to operate. And a listing is about to describe a property that has solar equipment on the roof and no working solar system.

That gap is uncomfortable to describe and entirely manageable to handle, provided it is handled on purpose. It goes wrong when everybody assumes the process will finish itself while escrow runs.

Anthony is a real estate licensee, not a contractor, an attorney, a lender or a tax adviser. Interconnection procedures, utility requirements and inspection practice change; confirm the status and the requirements with the installer, the permitting authority and the utility rather than relying on a general description.

An installation is a sequence, not an event

Hardware on a roof is one step in a longer chain. There is a permit, there is the physical work, there is an inspection by the authority that issued the permit, and there is the utility's own review that ends with permission to operate. Only after the last of those is the system properly running and connected.

A property can be stopped at any point in that chain, and the stopping point matters enormously to a buyer. What the finished paper file looks like, and why each document exists, is set out in the permission to operate guide.

The first job for a seller is therefore to find out precisely where the project stands, in writing, from the installer. Not roughly. Precisely: what has been submitted, what has been approved, what is outstanding, and what the installer commits to doing next.

The description problem

A house with unenergized panels is not a solar home yet, and saying so is the safest thing a seller can do.

The temptation runs the other way. The equipment is visible and it cost money, so the instinct is to present it as a feature. But a buyer who understands the property to have working solar, and then discovers during escrow that the system has never operated, has been given an inaccurate picture of what they are buying. The general standard for statements about a solar system is discussed in the disclosure duties guide.

The accurate description is short and, told early, it costs nothing: equipment has been installed, the system is not yet energized, and the remaining steps are the following.

Who finishes the job

This is the negotiation, and it should be a negotiation rather than an assumption.

There are three possible answers. The seller completes the process before closing. The buyer takes it on after closing. Or the parties agree on some arrangement that recognizes the unfinished state. Each is workable. What is not workable is silence, because silence produces the version where a buyer closes and then discovers that the entity responsible for finishing the work has a contract with somebody who no longer owns the house.

That last point deserves emphasis. The installation agreement is between the installer and the SELLER. A buyer taking on an unfinished project needs to know whether that agreement can be transferred, whether the installer will deal with them at all, and what happens to any deposit or balance. Those are questions for the installer in writing, before the parties agree who is doing what.

Payment, and what is owed

If the project was financed or contracted with money still to change hands, an unfinished installation carries an obligation as well as an asset. A recorded interest may already exist. The mechanics of resolving a solar debt at a sale, and of confirming the release afterwards, are covered in the payoff guide.

Order a preliminary title report early. An unfinished project is exactly the situation in which the paperwork is least likely to be tidy.

The permit question

Where work has been performed and the final inspection has not been signed off, the property has an open permit. That is a fact about the house that follows the house, and it can complicate a transaction independently of solar.

Buyers reasonably want to know that the work on the roof was permitted and approved. A system that never reached final approval sits in a different category from one that did, and what that costs a transaction is the subject of the unpermitted panels guide. Confirm the permit status with the permitting authority rather than with the installer alone.

A workable sequence

• Get a written status from the installer: what is done, what is submitted, what is outstanding, and what the next steps are.
• Confirm the permit status with the permitting authority directly.
• Ask the utility what remains before permission to operate, and what a change of ownership does to a pending application.
• Ask the installer, in writing, whether its agreement can be transferred to a buyer and on what terms.
• Order the preliminary title report and see whether anything is already recorded.
• Decide, and write into the contract, who completes the process and who pays for what.
• Describe the system's actual state in the listing and in disclosure, in plain terms.

The version that goes well

A seller who says at the outset that the panels are installed and not yet switched on, who has a written status from the installer, and who has already asked the utility what remains, is selling a known quantity. Buyers price a known quantity. They discount an unknown one, and they walk from a surprise.

Where to go next

Get the status in writing, confirm the permit, and settle the completion question in the contract rather than in conversation. The rest of the cluster is collected in the solar homes guide.

Anthony Grynchal has been licensed in California since November 2009.