Stuck in a long solar lease contract? Here's what you can do.
If you signed a decades-long solar lease or PPA contract, it might still be possible to get out of it. Here are some avenues you can investigate.
As more people realize their disadvantages, solar leases and power purchase agreements (PPAs) are shrinking in popularity, dropping from a high of 59% of the market in 2012 to only 37% in 2019. That’s still a sizeable chunk of the market, and some people regret signing these contracts.
With 20 year contracts being common, solar leases can tie you up for a very long time. Many consumers sign them without doing adequate research, especially after being solicited by door-to-door or kiosk salespeople.
In most cases, you can’t get out of them without eating the financial cost of paying out the contract or getting a future home buyer to take the contract over. Often, people realize too late that these agreements can have you paying electricity rates higher than their utility charges or make a home sale difficult. That said, it’s not impossible to get out of a solar lease contract.
If you’re stuck in one of these contracts and looking for a way to get out, read on for some things to investigate before you throw in the towel and eat the cost.
What’s the problem with solar leases?
It’s almost always financially better to purchase your home solar system, even if that means taking out a loan. If your credit rating isn’t great and you can’t obtain a loan at a reasonable rate, it would be better to delay your solar installation project than to go with the “free” option of a lease or PPA.
Even though it’s better to buy your system, these financial products are marketed heavily by companies like Sunrun and Vivint because they’re more profitable than doing a straight installation paid for with cash.
For consumers, that’s not the worst part of it. These companies also tend to use shady sales practices. That’s not just my opinion: both Sunrun and Vivint have been sued for their business practices. Sunrun settled two class action lawsuits related to their marketing, and Vivint Solar has been sued by the states of New Mexico and New Jersey.
One particularly relevant detail in the New Mexico lawsuit is that consumers were dissuaded from reading the full contact, and instead were handed a tablet and pressured to sign without reading it thoroughly:
One consumer noted that when agreeing to the Vivint contract, he was “never shown the full document.” Instead, the Vivint Sales Manager showed the consumer the first two pages of the contract on a tablet, then flipped to the last page to get the consumer’s signature agreeing to the contract. The consumer had no idea that the contract he signed consisted of more than those three pages and he was never provided with a physical copy of the contract or physical copies of the cancellation notice.
Because of shady practices like this, many consumers get locked into 20 year contracts without fully understanding what they signed up for. As a result many end up angry, as evidenced by the consumer complaints you can read on the Better Business Bureau website.
Key things to look for in your contract
Not every solar PPA or lease contract is the same. When it comes to being locked into your contract, here are the key things to look for:
- Duration. How long the contract lasts is often referred to as the “initial term”. It’s often 20 years.
- Cancellation period. In several states, consumers have the right to cancel their contract three days after signing.
- Contractual obligations and default. The contract may specify obligations that the installer must meet, such as completing the installation within a certain timeframe. If you can demonstrate that they’ve failed to deliver on those obligations, you may be within your rights to terminate the contract.
- Buyout option. You may be able to get out of the contract early by buying the system, but you often can’t do this right away. Often there is a six year waiting period before you can exercise a buyout.
- Transfer option. If you are trying to sell your house, an option is to convince the buyer to take over the contract. This is often the easiest approach, although you may need to convince the buyer that the solar panels are a good idea.
- Force majeure. If a catastrophic event such as fire or flood that prevents either you or the company from fulfilling the contract, you may be able to claim force majeure (which is French for superior or irresistible force - ie. an act of God) to cancel the contract.
One of these options might offer you a way to get out of your solar lease contract early.
If a salesperson sold you on a lease, you may automatically have three days to cancel.
Many companies that sell solar leases tend to use aggressive sales tactics and aren’t going to willingly offer you the option of cancelling after you sign on the dotted line.
Nonetheless, you probably briefly have the right to cancel the contract, even if the company doesn’t tell you about it.
The Federal Trade Commission has a three day “cooling-off” rule that specifically applies to a contract you signed with a company outside of their normal place of business.
What does that mean? If the solar company came to your door and you signed a contract, the rule applies. Or maybe you saw their table in a mall and signed on the dotted line? That also applies.
If you’re within the 3-day window, you can cancel the contract without penalty. Read more about the rule here.
By the way if the company didn’t inform you about this rule, your right to cancel, and give you two copies of the cancellation form, they are in violation of the law, and the contract is probably voidable for that reason.
Some states may have their own consumer protection laws. California does (see below), so check to see if your state has a similar provision.
Several states have broad three-day “cooling off” periods
Similar to the FTC rule but broader in scope, some state laws give consumers three days to cancel a solar contract. It doesn’t matter if it was a door-to-door sale or not.
These states include: Arizona, California, Florida, Nevada, New York, New Mexico, and North Carolina.
While the specific language varies, in all cases these states allow you to cancel any solar contract - not just a lease or PPA - within 3 business days of signing. If you regret signing a contract, this is the easiest avenue for getting out of it.
Unfortunately, 3 days isn’t very much. One important consideration is that it’s mandatory for companies to disclose your right to this cooling off period. If they didn’t provide that disclosure at the time you signed your contract, the company is likely in violation of the law which alone should allow you to get out of the contract.
Other mandatory disclosures
Several states have consumer protection laws that require solar contracts to disclose the details on some technical and contractual aspects of the system the homeowner is purchasing.
These include such things as warranties, system size, estimated power generation, project timelines, fees, interconnection requirements, whether a UCC-1 fixture filing will be applied, rebates and incentives, and complaint resolution.
Arizona, California, Florida, Illinois, Nevada, New Mexico, New York, North Carolina, and Utah all have state laws that cover some or all of these topics.
Every state has a different law around these disclosures, so unfortunately you’ll have to do a bit of reading to see if your contract was legally written. Fortunately, the Clean Energy States Alliance put together a helpful guide that makes this a lot easier. Check out the “Further reading” section at the bottom of this article for a link.
Unfortunately, companies like Sunrun have huge legal teams at their disposal so it’s rather unlikely that you’ll find something their lawyers missed. It’s still worth reviewing the contract, however. And if you signed a lease contract with a smaller company, you might get lucky and find an issue that give you an escape hatch.
If you think that a mandatory disclosure in your solar contract was missed, it would be helpful to have a lawyer follow up on your behalf.
Check if the seller has met their contractual obligations
There are other contract details you can follow up on too.
Your solar lease contract will describe the work that the company is commmitted to perform and possibly a timeframe in which they promise to complete the work.
Read the contract carefully, and you may find that if the company has missed one of its obligations, they may be in violation of the contract. For example, the installer will be required to obtain the necessary local and utility permits. Failure to obtain a permit, or delays in obtaining a permit could push out the project beyond its contracted completion date (if specified).
Another example is contractor licensing, the rules for which vary from state-to-state. You can look up the licensing for the company that you’re signing the contract with, but most of the time these large leasing companies will be subcontracting the actual installation work to another company.
The subcontractor is also required to have a current and correct license for installing solar in their state, so find out who your subcontractor is and check that their license is up-to-date. In most states, you can check contractor licenses online.
If the company is missing their license, that can be criminal offense in your state, voiding the contract and your obligation to pay.
Get somebody else to pick up the contract
If you’ve gone through your contract with a fine-toothed comb and haven’t found any violations that will let you escape, you’re probably stuck with it. This means going with Plan B.
Many people who have reached this point are trying to sell their home and don’t want the sale to be encumbered by the solar lease, which can be a turn-off for some buyers.
As the seller, the easiest option is to convince the buyer that the solar panels are a benefit and have them take over the lease.
Known as a service transfer, the solar company will usually be helpful in making this happen, as it’s the option that’s most beneficial for them.
It can be hard to convince a home buyer that a solar lease is good for them. It will be easiest if the automatic escalator in your contract hasn’t raised your price of electricity higher than the utility’s rate.
Force majeure in your solar contract
An event that’s outside the control of either you or your solar installer - such as a natural disaster or a plague (eg. COVID-19) - that delays the completion of the contract may allow either party to cancel it.
One particularly relevant example is COVID-19, which prevented many solar installers from operating normally. If the pandemic delayed the start of your installation, it’s possible that either party could declare force majeure to end the contract.
Other extradinary reasons, such as fire or a flood, could also trigger this provision. Be sure to read your contract closely, as some solar contracts specifically prevent you from using a force majeure event from paying your lease obligations.
Last resort: You can buy out your contract, but often only after 6 years
If you’ve exhausted all other options, the last way you can end your contract early is to buy it out. This means purchasing your solar system by paying a lump sum of money.
Most solar leases will have a provision to let you purchase your system outright and thereby terminate the lease contract, but there is usually a six-year waiting period before you can exercise it.
Why is that? It’s because the solar company owns the system, and as its owner they receive the federal tax credits for solar. IRS “recapture” rules require them to hold onto the system for at least six years, otherwise they must repay a portion of the tax credit. These credits are crucial to the business model of a solar lease or PPA, which is why your contract will probably specify a 6-year wait.
After 6 years has passed, you’ll may have the option to purchase your system. The price of this buyout should be listed in your contract. If it isn’t or the buyout option isn’t offered, don’t sign it because you won’t have a last resort to escape the contract.
This option should be your last resort, because it’s an expensive way to purchase a solar system. This is because you initially weren’t the owner of the system and therefore couldn’t claim the IRS tax credits and other incentives that you otherwise would have gotten. You can use our solar cost calculator to find out that the total incentives in some states is 50% of the purchase price or even more.
When you buy out your solar lease or PPA, you’re paying the depreciated invoice price of the system without the benefit of tax credits or incentives. On top of that, the solar installer will probably bake in a little extra profit on top of it so you’ll be paying slightly more than its true depreciated value.
That’s an expensive way to buy solar. This is why if you can afford to, you should buy your system upfront, even if it means taking out a loan.
Bottom line: getting out of a solar lease is usually hard
The bottom line is that it’s possible to get out of a solar lease or PPA contract, but most of the time your options are bad. The best bet is if you have second thoughts immediately after signing the contract and can exercise a 3-day escape clause. If that’s an option, don’t hesitate - just end the contract immediately. If you decide that a solar lease is really your best option, you can always sign a new contract after taking the time to evaluate other financing options and getting quotes from other solar installers. It’s much harder to get out a 20 year contract after the 3-day window has passed.
To learn more about state-level laws on solar contracts and disclosures, check out this report from the Clean Energy States Alliance: State Solar Contract Disclosure Requirements