In recent years, environmental concerns, skyrocketing electricity costs, and tax incentives have led to a boom in both residential and commercial use of solar panels. Stated differently, the masses have flocked to solar not just for its green technology, but also to put some green – as in cold, hard cash – in their pockets. That said, the devil is in the details: A poorly drafted solar installation or lease agreement may prove disastrous for the uninitiated. Here are a few things to keep in mind when negotiating a solar-related agreement, whichever side of the transaction you find yourself on.

1) Timing for Tax

In Massachusetts, installing solar panels may qualify you for various tax incentives, including the Federal Solar Investment Tax Credit (TIC), the Massachusetts Residential Renewable Energy Income Tax Credit, the Home Solar Project Sales Tax Exemption, the Massachusetts Solar Property Tax Exemption, the Solar Massachusetts Renewable Target Program (SMART). Often, these incentives require the solar panels to be installed and/or operational by December 31 to earn these incentives on that year’s taxes. Therefore, both parties should be aware during the due-diligence process that any delay in the agreement process could impact year-end tax and rebate eligibility. As always – time is of the essence.

2) Keep Your Options Open

Before diving headlong into a long-term contract, parties may consider an option agreement before proceeding with development and financing. An option agreement may give the solar company exclusive solar development rights to the property for a year or two to allow the solar company to investigate the feasibility of the proposed solar project. In some cases, the option agreement may incorporate pre-negotiated lease or other agreement terms that that will go into effect if the solar company exercises the option. In other cases, the option agreement specifies only some material terms (e.g., rent) but leaves others for further negotiation at a later date.

3) Rent

Solar-related agreements may provide for various rent and payment mechanisms over the life of the agreement. Some agreements base rent on a fair market value of the land, while other agreements call for rent to be paid on the volume of power generated by the solar panels. Some agreements incorporate both.

It is imperative that solar companies and property owners seek competent advice regarding the payment amount, structure, and increases over the life of the agreement. Once signed, an agreement generally only may be changed by the agreement of both parties, regardless of whether market conditions have materially changed.

4) Property Restoration

Although solar companies and property owners may focus more heavily on the financing aspects of a solar agreement, they should not forget that the agreement ultimately is for the use and possession of property. Property owners should ensure that when the agreement ends, their land is restored to its original state as quickly as possible. Solar companies should ensure that their property (i.e., the panels and related equipment) remains their property during the life of the agreement and is returned to them in proper condition at the end of the agreement.

5) Maintenance/Repairs

The functionality of the solar panels and associated equipment is a paramount concern of any installation. As such, solar companies should ensure that the solar agreement allows them to adequately maintain and/or repair their panels and equipment throughout the lease term. Further, solar companies should ensure that they are not responsible for any damage to their panels or equipment caused by the landowner’s property. An example of this would be solar panels installed on a property owner’s roof that structurally deteriorated during the life of the lease term and negatively impacted the panels.

Property owners should ensure that their property (i.e., the ground or roof where the panels are located) is protected by the solar agreement and any damage to their property caused by the solar panels or associated equipment is not the property owner’s responsibility. Property owners should be aware that installing solar panels can involve highly complex construction and engineering issues and any solar agreement must ultimately protect the underlying property.

Conclusion

This Article highlights five major concerns when negotiating or drafting a solar lease agreement. Ultimately, agreements and relationships are unique to the parties involved. It is wise to hire experienced legal counsel when entering into any contract, especially long-term agreements related to real property. The cost of doing so and properly protecting one’s interests is a drop in the bucket compared to the potential risk exposure from a poorly thought-out or poorly drafted agreement. If a dispute already has arisen, we can help you resolve it through mediation, arbitration, or litigation. Do not hesitate to reach out if you would like additional information.