Real estate professionals are bound by a duty of care to disclose material facts that can influence the value or desirability of a given property. Failure to abide by this duty can result in expensive legal claims, including lawsuits alleging that the real estate agent or broker acted in bad faith and/or was negligent in the discharge of his or her duties.

The Claim

A couple purchased a home in California. The home was equipped with solar panels to generate electricity for the home. Upon taking possession of the home, the couple faced a bill of over $14,000 to pay for the panels. During the acquisition of the property, the real estate agency the couple used claimed that the panels on the home were owned; the transfer disclosure documents indicated ownership of the panels.

The couple filed a lawsuit against the real estate agent and broker, claiming that these parties failed to disclose material facts about the solar panels, namely that they were not owned but leased from a solar energy provider. The new homeowners – are seeking the funds to complete the purchase of the panels.

Solar Panel Deal Structures

When a homeowner wishes to add solar panels to a home, there are several possible deal structures to be aware of. The two most common are panel ownership and system leasing. Some solar panel companies allow homeowners to purchase the panels upfront, while others require that the panels and supporting equipment are leased for a period of time from the provider. Monthly lease payment on the solar panel system is typically how the deal is structured. In some cases, solar panel lease agreements may require a 20- to 25-year commitment on the part of the homeowner.

What Went Wrong

A home equipped with solar panels may be an enticing prospect for a prospective homeowner. However, how the solar panels are structured in terms of ownership or leasing plays a significant role in the purchase price of the home.

A home equipped with panels under a lease agreement may be sold, but it is critical for buyers, agents, and brokers to have a clear understanding of that arrangement. The assumption is that the new homeowners will continue to lease the panel equipment just like the former owner had. In the above claim, the homebuyers had no idea the panels were leased; they were led to believe through transfer disclosures and with discussions with the real estate professionals that the solar panels were included as part of the purchase price. In other words, the homebuyers thought they were owners of the panels, not lessees.

Real estate professionals – including listing agents and brokers – must decipher all utility arrangements prior to the sale of a property. The key takeaway is that it is always the responsibility of the agent to ask the right questions regarding utilities and specific features of the home that may affect desirability or purchase price. Failure to do so opens the real estate team to significant liabilities and claims against E&O insurance policies.