We look at some of the issues with solar panels on security and what practical steps can be taken relating to repossessed security.
The use of solar panels to provide electricity for the home has become increasingly popular. Where the solar panels were bought outright, there ought not to be any risk to lenders. However, where panels have been fitted as part of one of the many ‘free’ schemes that have proved so popular, the borrower, and even the lender may be in for trouble. The ‘free’ schemes involve home owners entered into a leasing agreement, often tying themselves into a 25 year lease.
The Council of Mortgage Lenders (CML) has already provided guidance for lenders that says:
“Lenders support the principle of green energy initiatives, but want to ensure that solar panel leasing agreements do not adversely affect the value or marketability of the property. Ensuring compliance with the CML’s minimum requirements should reduce the chance of a borrower encountering problems in trying to sell or remortgage the property, or in carrying out repairs and maintenance. [The CML] advises borrowers to include their lender in the discussions with the panel provider from an early stage. That should enable any security or valuation issues to be addressed before signing a lease agreement.”
Arising from the guidance, there is now a list of approved panel providers and a procedure for them to follow including a template letter for them to use in seeking permission, on behalf of borrowers, to fit panels. The letter confirms that the lease will contain a break clause for landlords who are mortgagees in possession. If a property is repossessed after a breach of mortgage, the lender can invoke the break clause and the panel provider will remove the panels from the property.
The guidance was published in October 2011 but what of leases that were entered into before then, where there is no break clause?
Or borrowers who have gone with non-approved panel providers and who have not sought any permission?
The problem for lenders arises where a property has been repossessed and the lender wishes to sell as mortgagee in possession.
The reality is that not everyone wants to buy a property with solar panels fitted or, if they are interested, they may have great difficulty securing a mortgage where there is a lease in place that does not protect the lender adequately. The presence of solar panels may prevent a swift sale or, indeed, any sale, leaving the lender faced with having to either remove the panels, or slash the asking price to achieve a sale. Inevitably, this could lead to a sale at shortfall.
What can the lender do?
One option might be to negotiate a deal with the panel provider to remove the panels in return for some remuneration. This may well be more cost effective than the lender paying someone else for their removal, or reducing the sale price to find a buyer. Where there is equity in the repossessed property, the lender ought to be able to afford to do this and deduct any costs incurred from the proceeds of sale (provided the mortgage conditions permit). Where there is no equity, any expenditure will form part of the shortfall on sale and the lender would have to make the usual commercial decision about whether to try and recover the shortfall or not.
Practical steps - acting early to reduce the headache after repossession
Whilst it would be unrealistic to audit all existing security and identify properties with unauthorised leasing agreements, some steps could be taken at the point that possession proceedings are being contemplated:
- Any pre-legal visit to the property to interview borrowers should include a report on the presence of solar panels and (if the borrower is interviewed) whether these are leased or not.
- If leased solar panels are identified, the lender can check its records to ascertain whether permission was granted. If not, a copy of the leasing agreement can be requested from the borrower, together with permission for the lender to contact the panel provider.
- If there is no pre-legal visit, the collections team or legal team should endeavour to obtain information during the course of the arrears recovery steps and, if it appears that there may be a leasing arrangement in place for which permission has not been given, the borrower could be asked to provide the necessary information and authority.
- If the borrower co-operates, the lender would then be able to contact the panel provider ahead of any repossession to try and agree removal of the panels in the event of the lender taking possession.
Whilst these steps may not solve all potential issues, at least the lender will be in a position of knowledge before it enters into possession and, in some cases, may even have smoothed the way to agreement with the panel provider for removal.