When the Solar Assumption Is Denied Mid-Escrow

Here is a failure mode that surprises people, because it involves a party who is not in the transaction and who has no obligation to care about it.

The house is agreed. The inspection is clean. The loan is moving. And the solar provider declines to approve the buyer as the incoming party to the agreement.

The deal now has a hole in it, and nothing in the purchase contract can order the provider to change its mind.

Why it happens

Where a system is owned by a third party and the homeowner is a party to an ongoing agreement, that agreement generally cannot simply be handed to a stranger. Somebody has to accept the new counterparty.

What the provider requires of an incoming owner is set by the provider, varies between companies, and is not something an outsider should characterize in general terms. It may be a credit-based review. It may be documentation. It may be a process with a fee attached.

What matters for a transaction is simpler than the criteria: THE APPROVAL IS NOT AUTOMATIC, and it is not within either party's control.

The mechanics of the transfer itself are set out in the lease transfer guide, and the same structural problem arises on service agreements, described in the PPA guide.

Find out early, because early is the only cheap version

The single highest-value thing in this whole subject is timing.

Submit the transfer application at the START of the escrow, in the same week as the loan application, not after the inspection and the appraisal are done.

A denial discovered on day six is a problem with options. A denial discovered on day thirty-one is a problem with a deadline attached, and by then both sides have spent real money on reports and appraisals that a cancellation does not refund.

The contract should also say what happens. A purchase agreement that is silent on solar approval leaves the parties arguing about which contingency covers it. A purchase agreement that names the approval as a condition, with a date, gives everybody a known exit and a known deadline. That drafting is worth doing at offer stage, and the leverage available then is covered in the buyer tactics guide.

The options when it happens

Broadly five, and which are available depends entirely on the agreement in hand.

THE SELLER TERMINATES THE AGREEMENT. If the contract permits an early end on payment, the seller can end it and deliver the house without the encumbrance. Whether that is possible, and on what terms, is a question for the seller's own agreement and counsel. The general shape of it is described in the buyout guide.

THE SELLER SATISFIES THE OBLIGATION AND IT CONVEYS CLEAN. On a financed, owned system this is a payoff, which is ordinary escrow business and is covered in the payoff guide. On a third-party-owned system it may not be an option at all.

THE BUYER REAPPLIES OR APPLIES DIFFERENTLY. Sometimes the denial is procedural rather than substantive: incomplete documentation, a name mismatch, one applicant listed rather than both. Ask the provider what the actual basis was before assuming it is final.

THE EQUIPMENT COMES OFF. Removal is rarely quick, rarely cheap, and leaves a roof that needs attention afterward. It is a real option and it is usually the worst one.

THE DEAL ENDS. Sometimes that is the correct answer, and a well-drafted contingency makes it an orderly ending rather than a fight over a deposit.

The money question nobody enjoys

If the seller has to buy out or pay off an obligation to close, that money comes from somewhere, and there are only two places it can come from.

It comes out of the seller's proceeds, or it comes out of the agreed price, or it is split. That is a negotiation, and it is a negotiation conducted under time pressure with a buyer who now knows the seller has a problem.

Which is the real argument for the seller doing this work BEFORE listing. A seller who resolves a third-party solar arrangement in advance sells a house. A seller who discovers mid-escrow that the arrangement will not transfer is negotiating from a position they created themselves. The pre-listing sequence is set out in the leased solar playbook.

What it does to the next buyer

A cancelled escrow does not stay private.

A property that comes back on the market carries a question with it, and the next buyer's agent will ask what happened. The honest answer, that the solar arrangement would not transfer to that particular buyer, is not fatal. It is a fact that has to be handled, and it means the seller now needs the solar position resolved or clearly documented before the next offer arrives.

Disclosure obligations continue to apply, and a seller who now knows the transfer process is a live issue knows something the next buyer will want. The scope of that is in the disclosure guide.

The practical rule

Treat provider approval exactly like loan approval. It is a third-party condition, held by an institution with its own timetable, that can kill a transaction.

Nobody writes an offer on a house and then applies for the mortgage in week five. Apply the same discipline to the solar.

Read the contract, ask the provider what the incoming-owner process actually is, submit it immediately, and put the approval into the purchase agreement as a named condition with a date on it. Every one of those steps costs nothing and each one removes a way for the deal to fail late.

Contract questions belong with your own attorney reading your own agreement, and utility and tariff questions belong with the utility and the California Public Utilities Commission, whose terms change.

Start at the solar homes hub, then read the contract reading guide before you write the offer.

Anthony Grynchal has been licensed in California since November 2009.