Q: We represent a Buyer who is in escrow to buy a condominium. He wants to be able to install a solar- energy system on the roof that is shared by seven other units and does not want to close escrow unless he can be assured that he can do that. Is it okay to tell him that he can install the solar system after escrow closes?
A: There is absolutely no way for any real estate professional to “assure” the Buyer of a unit in a common interest development that a solar-energy system can be installed at any time. That has always been true but it is now even more problematic because the California Legislature made changes to the Davis Stirling Act (which regulates Homeowners’ Associations for Common Interest Developments); those changes went into effect on January 1, 2018. Depending upon the specific conditions of the roof, the type of system to be installed, the existence of any other solar systems and/or the existence of any PACE loans, it may be physically and/or financially impractical to install a new solar-energy system.
New Civil Code Section 714.1 gives the Homeowners’ Association the right to impose “reasonable restrictions” to create a fair system to apportion out or map the roof area of a multi-family structure that can be used by any individual homeowner to erect a solar-energy system. The amount of viable roof space may not be sufficient to build an adequate system for the number of units that may want to have a solar system.
In many multi-owner buildings, it may be impractical to designate sufficient roof area to facilitate a single homeowners’ request to install a solar system if other homeowners have already erected systems and/or other individual owners want to install future systems. It may also be impractical to install an effective system if there is limited sunlight and/or if installation of the solar equipment, including its wiring, negatively impacts other homeowners.
The new law allows the HOA to restrict installation of solar-energy systems in common areas to those systems approved by the HOA. Part of the statutory “reasonable restrictions” for that approval include:
- Require the owner of a separate interest to obtain the approval of the HOA prior to installation of a solar-energy system;
- Require the owner to provide for maintenance, repair, or replacement of roofs or other building components that may be impacted by the installation or use of the solar-energy system (the statute is silent on how that is to be accomplished but may necessitate securing a performance bond); and
- Require installers of solar-energy systems to indemnify or reimburse the HOA or its members for loss or damage caused by the installation, maintenance, or use of the solar-energy system.
The HOA may not establish a general policy prohibiting the installation or use of a rooftop solar-energy system for household purposes on the roof of the building in which the owner resides, or a garage or carport adjacent to the building that the owner has exclusive rights to use. The HOA will also be prohibited from requiring a vote of its members to approve installation of a solar-energy system in an area where the owner has exclusive use rights.
Bottom Line: Even if there are no practical limitations on installing a solar-energy system at a common interest development and even if there are already solar-energy systems in place, the cost of these new “reasonable restrictions” may make installation of a new system infeasible. Thus, Buyers of a single interest in a common interest development who want to add a solar-energy system should be told, preferably in writing (such as an e-mail) that it may not be possible.
PRACTICE TIPS:
- When representing Buyers who want to add solar systems to common interest developments, they need to be warned that it may not be financially or practically feasible and that they should not remove any inspection contingencies without making certain that they really can install a solar system.
- Selling Agents should advise Buyers (preferably in writing) to thoroughly investigate the issue of adding solar panels with the HOA as soon as possible. The Buyer should also consult with the solar company that they intend to use and have that entity inspect the roof to determine whether or not the project can be built. The solar company will also need to review the HOA indemnification and reimbursement requirements on solar installers before determining whether they can build what the Buyer wants to do.
- If the Buyer intends to secure any type of PACE loan (Property Assessed Clean Energy financing) and a federally-insured mortgage, the Buyer should be warned that, effective January 7, 2018, the FHA will cease insuring mortgages encumbered by a PACE loan due to the superior lien status of those obligations.
- If the Property is already encumbered by a PACE loan (used to finance solar-energy systems and/or any type of energy-saving devices) that the Buyer is assuming, the Buyer needs to confirm with their mortgage broker about the viability of securing new institutional financing if the FHA will not insure the mortgage.
Do not forward to Sellers or Buyers: This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2018 01/19/18