How certain solar contract terms can limit your ability to exit early

Certain solar contract terms can prevent you from exiting early, such as long-term agreement clauses, early termination fees, and buyout penalties. There are also system performance guarantees that favor the provider, as well as transfer and property sale restrictions.

According to PV Magazine, analysts project that by 2030, one in eight American homes will have solar. This clean, alternative energy is nice in theory, but it’s not always a positive or cost-effective experience.

Homeowners may want to cancel their solar contract early, but there are certain terms that prevent them from doing so. These are the solar contract limitations you should be aware of.

Long-Term Agreement Clauses That Lock You In

Many solar contracts are structured as long-term agreements, and they can span 20-25 years. This aligns with the lifespan of solar panels, but it can significantly limit your flexibility if your circumstances change.

For example, there may be strict early termination provisions, or contracts may restrict transferring the agreement to a new homeowner unless they meet specific credit requirements.

This makes evaluating how long you’re realistically planning to stay in your home and understanding contract terms thoroughly important to do before signing.

Are There Early Termination Fees and Buyout Penalties?

One of the most restrictive elements in solar contracts is the early termination fee (ETF) or buyout clause. These fees are designed to recoup the provider’s expected profit over the life of the agreement, so they may be surprisingly expensive.

The buyout amount decreases over time for some cases, but in others, it remains high for many years. Some agreements also calculate penalties based on projected energy production, which can further inflate costs.

System Performance Guarantees That Favor the Provider

Performance guarantees may sound like a benefit, but they can sometimes work in favor of the solar provider rather than the customer. For instance, contracts may include minimum production thresholds that result in minor credits if you don’t meet them, rather than an early exit from solar contracts.

Even if your system consistently underperforms, the only remedy might be small financial compensation instead of contract termination. The terms defining “underperformance” are also narrowly written, so it can be difficult to prove a breach significant enough to justify exiting the contract.

Those who are trapped in an agreement with a subpar system may be able to bring a solar lawsuit, especially with the help of professionals.

What Transfer and Property Sale Restrictions Are There?

If you plan to sell your home before your solar contract ends, then transfer restrictions can be a major obstacle.

Many agreements require the new homeowner to assume the solar contract, and this can deter potential buyers or complicate the sales process. If they don’t qualify or refuse to take over the agreement, then you may be forced to pay off the remaining balance.

Some solar energy contract terms also require approval from the solar provider for any transfer.

Understand Your Solar Contract Before Signing

You may want to do your part in being eco-conscious by switching to solar power, but it’s important to understand your solar contract first. Since it locks you in for decades, you’ll want to know what you’re in for, especially if there’s a chance of early termination.

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