BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Leased Security and Solar Systems
and other types of leased systems and equipment
Q: I am a buyer’s agent and my buyer just closed on the purchase of a home. The home has a solar system on the roof and a built-in security/alarm system. Now my buyer has received billings from the solar system company and the security/alarm company for the monthly service for each system. Nothing was ever disclosed by the seller or listing agent that these were leased systems. What can my buyer do?
A: This is a common occurrence when listing agents and sellers are not paying attention to those items in, or attached to, the home that are not owned but instead subject to a lease.
The Purchase Agreement forms specify that those fixtures and equipment owned by seller are transferred. These include security and alarm systems, solar systems, TV satellite dishes, water softening and purifying systems and propane tanks. There may be others as well. The presumption will be that all of those systems and equipment are owned by seller unless specifically stated to be subject to a lease.
The TDS has check boxes for burglar alarms, satellite dish and water softener that, if checked, will indicate that those items are included in the sale.
Also, note that the CAR Seller Property Questionnaire (zipForms form SPQ) question V.C.2 asks whether the solar system, water softener system, water purification system, alarm system or propane tank(s) are leased. (The PRDS Supplemental Seller Checklist has similar questions regarding owned vs. leased equipment.)
If any such items are being leased by the seller, it is likely that the lease will specify that the lease transfers to the new owner if the property transfers. These leases often last for many years because the vendor will install the equipment for free and recover the costs over the life of the lease payments.
For example, many solar equipment leases are for 15 to 20 years. These leases can have extension periods sometimes for 5 years. In some cases, the leases will automatically renew for the indicated extension period unless written cancellation notice is given to the vendor within a specified time period before termination of the current lease period.
If a consumer breaks a lease, the leasing company will pursue the consumer, either the original owner or the current owner – who may not even have been aware of the lease at the time they bought the home. This creates expensive and time-consuming legal entanglements. The vendor/lessor will also remove the equipment from the property if the lease is breached.
If a buyer is unhappy when discovering for the first time after the close of escrow that certain equipment is leased, the buyer may be able to recover from the seller the lease costs on the leased equipment on a theory that the seller had the obligation to disclose if any systems or equipment was leased rather than owned.
For more information on buyer claims after the close of escrow, see Weekly Practice Tip entitled “Buyer Claims After COE.”
PRACTICE TIPS:
LISTING AGENTS:
1. When taking a listing make a note of any solar systems, security systems and the other types of equipment and systems mentioned above. Ask the seller if any of this type of equipment or systems are owned or leased.
2. If leased, obtain copies of the leases and provide them to the buyer with other seller-provided documents.
BUYER AGENTS:
3. When using the CAR Purchase Agreement, check the box in paragraph 11.A requiring seller to provide the Seller Property Questionnaire.
4. If any items in the SPQ (or PRDS SSC), state that any equipment or systems are leased, request in writing from the listing agent to receive copies of those leases if not otherwise provided.
5. As with all other seller-provided documentation, advise your buyer to carefully review them and raise any questions or concerns they may have.
6. Buyers may want to contact the vendor/lessor to clearly understand the lease terms and their obligations and rights under the lease, prior to removal of the inspection contingency.
7. As always, refer your buyers to an attorney if they have any questions about the lease, its terms or how it affects buyers.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. 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 2012 11/30/12