Securing the FIT income when moving house

[Kombi]

Hello all,

With the tariff lifetime for PV set at 25 years it is very likely that I will move before the expiry of the tariff. It might even be in a few years time if work dictate I have to. So my question is how can I secure the income to myself should the new owners not be willing to compensate me? I know that FIT can be allocated to an individual, but is that linked to an address or not?

[Ted]

DECC, in their wisdom, consider that this is your problem and not theirs.

This is from the DECC consultation response:

115. Given the length of FITs payments (10 to 25 years), there will be frequent
instances where the ownership of the property hosting the generating
equipment on which FITs is paid changes. We expect standard property
ownership rights to be applied to the ownership of the generating equipment.
When ownership of that property changes we will expect the ownership of
the generating equipment and FITs payments to also change and pass to the
new owner of the property and this will need to be notified to the scheme
administrator. It will be left to the market for the previous owner to be
compensated for the remaining value of the FITs payments and on-site
benefits (e.g. through a higher price paid for their property).

Just one more disincentive.

[desperate]

Well hang on a moment. We have to be realistic

if I put a new bathroom in my house and then moved a few years later, should I be compensated if the new property has a poorer shower, on the other hand I would expect my house to be worth a bit more or at least sell easier, so whats the difference?

Desperate

[Justme]

Your bath does not get a cheque in the post every quarter.

[Ted]

The difference here is that, due to the conditions that DECC have put on FITs, the seller can be held to ransom. 

What do you do if every potential buyer cottons on to the fact that they can say "I don't want it. Take it off and knock £xk off the price."  They know that you are stuck in a relationship that doesn't allow the PV, or whatever, to be moved to your new house.  You argue that "there's still 20 years FITs income left that you will get that is worth £xk."  "Tough luck" they say. The seller has no bargaining power at all - other than maybe strip it off and sell second-hand outside the UK.

If you have already had 10 years FITs payments back then the buyer knows that you have more or less broken even on the capital cost and still won't be willing to pay extra for the house to compensate you for the lost income. That is income that they want to have as the new owners.

This could only change if housing becomes a sellers market again or if your house is especially desirable in some other way.

In the future houses with PV on may sell quicker but are unlikely to get higher prices just due to the PV.

[pb]

If you have already had 10 years FITs payments back then the buyer knows that you have more or less broken even on the capital cost and still won't be willing to pay extra for the house to compensate you for the lost income. That is income that they want to have as the new owners.

I don't quite understand why you feel that FIT income is special in this way.

Suppose I had planted a orchard on my land and was generating an income from selling apples.  I wouldn't expect that the purchaser of my property would be obliged to send me the proceeds from any future apple sales, even though I paid to plant the trees in the first place.

Or suppose that I had leased an area of land to a telco for them to erect a phone mast.  They would send me a cheque every year for the ground rent.  If I then sold the property, including the rented land, I would expect the future rent payments to go to the purchaser since they would be the new landlord.

Or, to take a more prosaic example, suppose I had just paid to have the property re-insulated.  Although that wouldn't generate a cheque each month, it would still produce a return in the shape of lower heating bills.  If I move house then I wouldn't expect the purchaser to go on compensating me for that month after month.

It's just a fact of life that, if you invest money in a property and then move house before you have fully recouped the cost of that investment, you run the risk of making a net loss.  This has always been the case with building work and I don't think that PV systems and the associated FITs are really any different.  And, since the net present value of a future FIT payment stream is much easier to quantify than (say) the net present value of a new bathroom, it ought to be relatively straightforward to factor that into the price of the property.

You're right that the seller has no leverage if it turns out that the buyers don't actually want what he is offering them.  But, again, this is no different to the "new bathroom" scenario: if you've just spent £50k on your dream bathroom but the buyer doesn't want (to pay for) it, there isn't much you can do except absorb the loss or look for a different buyer.

It's also hard to see how transferrable FIT payments could be made to work in practice.  If you move house and take the FIT with you, would you expect to pay the purchaser an annual maintenance charge to keep the PV system operating?  What if you have negotiated your own tariff with your electricity supplier and then the new purchaser wants to switch to a different supplier; would you expect to have a right of veto over that?  Would you expect to compensate the buyer for the opportunity cost of not being able to install his own generation system (and hence not being able to derive his own FIT income) since yours is in the way?

[Kombi]

If the benefit from the FIT has been built into the price and you actually manage to achieve a sale at that price then fair enough but if not then you are stuffed. If no solution is found for this problem then it is going to be another hindrance in the development of green technology.

If keeping the FIT the new owners would still benefit from a much reduced electricity bill and that would more than cover for the maintenance costs.

Let's look at things differently. During the whole process the DECC have looked at how to encourage investors into green technology. So say a wealthy investor has an agreement in place with the local farmer to put PV on his barn and collect the revenue from that. A few years on the farmer sell the property, do you really expect the investor to kiss goodbye to his revenue?

[CeeBee]

Certainly an interesting discussion, and an angle on this that I hadn't previously thought of (not that I'm planning on moving, nor yet knowing what will become of my pre-FIT PV system once FITs start - will Southern Electric/Ebico _really_ write saying "Sorry, you're stuffed", and perhaps me replying "I'm moving to another supplier"...).

Embarassed to expect Ted to know all the answers which we could read ourselves if we bothered to read DECC's documents. I did read and respond to the 'consultation', but haven't time to read the final document.

Has it got anything to say about landlords putting systems on their properties? I could envisage doing this so long as I got (as landlord) the FIT payment on total generation; tenants would get the benefit of reduced electricity bill, and I'm not sure what would become of the (probably trivially small) export payment. If the rules somehow insist that tenants would get all the benefits, then obviously I won't bother doing it (unless of course they fancy paying higher rent to compensate).

Also makes me think: with the present Southern Electric scheme for PV that I'm on (28p/kWp for everything exported, but nothing else), I'm encouraged to try not to use the electricity, since that's gives me maximum benefit. But a FIT scheme paying large amounts for generation, but next to nothing for export, just seems to encourage profligacy - i.e. I might as well 'waste' this electricity, since I'm being paid for it anyway, and will only gain a few pence if I don't use it.

[pb]

So say a wealthy investor has an agreement in place with the local farmer to put PV on his barn and collect the revenue from that. A few years on the farmer sell the property, do you really expect the investor to kiss goodbye to his revenue?

In that situation I would expect that the investor would own the PV kit (together with its FIT entitlements), and would simply lease the roof area from the farmer.  Assuming that the lease was drawn up appropriately, it would survive the sale of the farm and the investor wouldn't really notice any difference.

If the farmer owns the PV kit then the investor's role would be essentially just that of a bank: lending the farmer the initial capital that he needs to install the equipment, and then having it repaid with interest over some period of time.  In this case, the FITs would be payable to the farmer and the investor could recover his "share" of the profit by setting the interest rate higher than it would have been for an equivalent loan that didn't generate a FIT entitlement.  When the farm is sold, the farmer has two options: either he can buy himself out of the contract by repaying the whole loan to the investor (presumably plus some kind of penalty to compensate the investor for his lost future income), or he can arrange for the farm's contract of sale to transfer the whole arrangement to the purchaser.

[Justme]

In the case of the fruit trees & the apple sales the on going income from them will have a value to the new owner so the property price would reflect this. Just as any property that has income potential does now. The PV should be the same but some types of people wont see that & so wont pay the extra.

As an example a 5 bed house is worth say £300k yet a 5 bed house with 4 set up as B&B rooms will be worth that £300k plus say £100k for the B&B business.

I dont see why PV should be any different.

£X for the house & then £Y for the pv equipment & the guaranteed income.


As you own the kit already & its on the approved list moving it to a new site should not stop the FIT's.
(not sure if the costs of using an approved company to remove & refit would be worth it)

Will the fits stop if you have to take it all off the roof to fix a leak? Or if you see that its sited badly & needs moving or a new building gets put up or a tree grows so you need to relocate it?

[Kombi]

if we bothered to read DECC's documents

I have read it a couple of time actually and found it unclear hence why I created the topic.

On one hand the DECC says (paragrah 115):
"Given the lenght of FITS payments (10 t6o 25 years), there will be frequent instances where the ownership of the property hosting the generation equipment on which FITs is paid changes. We expect standard property ownership rights to be applied to the ownership of the generating equipment. When ownership of that property changes we will expect the ownership of the generating equipoment and FITs payments to also change and pass to the new owner of the property and this will need to be notified to the scheme administrator. It will be left to the market for the previous owner to be compensated for the remaining value of the FITs payements and on-site benefits (eg through a higher price paid for their property).

On the other hand paragraph 117 says:
"...We confirm that a generator may assign the benefit of the FIT payment to a third party subject to controls to ensure that the risk of fraud and abuse is minimised...Any assignement of rights to any person(s) or organisation other than the legal owner of the premises will need to be supported by evidence e.g. presentation on request of a legally binding contract between the owner of the installation and the assignee"

So, what I make of it is that I could sell the house but retain ownership of the PV installation and FITs payment provided there is a legal agreement in place. This could be done during the sale process. Do you agree or disagree?

[pb]

So, what I make of it is that I could sell the house but retain ownership of the PV installation and FITs payment provided there is a legal agreement in place. This could be done during the sale process. Do you agree or disagree?

Legally speaking, yes, I'm fairly sure it could be done.  In practice though I think this would be more trouble than it is worth for a domestic installation.

If you retain ownership of the PV system then your contract would need to include a provision for you to have access to it for maintenance and (unless it has its own service head and metering) an arrangement for you to use the house wiring to connect it to the grid.  The new owner of the property would probably want to charge you a monthly rent on the roof area that it's taking up, and insist on you indemnifying them against any damage that the PV causes to the property if, for example, the cable entry points start shipping water into the roof space.  They will probably insist that you maintain insurance to cover yourself against those kinds of risks.  They might also require you to remove and re-fit the system (at your expense) if the roof covering ever needs to be repaired or replaced. 

Plus, as I mentioned before, the presence of your PV system could well prevent the buyer from installing another (which of course would have attracted FIT entitlements of its own) and he might want to be compensated for the 20 years of income that he's losing out on by buying your house compared to one that never had PV in the first place.

I suspect the buyer's solicitor would advise them to think twice about entering into a contract like that and, even if you find someone who will accept it, the value of the property is going to be significantly reduced as a result.  You could easily end up worse off than if you had just bundled the PV and FIT entitlements with the property and put the price up slightly to compensate.

[Kombi]

Interesting points you make PB.

I may be wrong but would assume that the free electricity the new owner is getting should be enough of an incentive to have the system stay on the roof. Normally, if you add PV on top of your roof it makes it more waterproof...
Good point about the potential desire for the new owner to install a system of his own; although it would not be a pb in my case as I have three // roofs and only one is required for a 4kW system.

Ultimately, as you rightly point out, the easiest is to bump up the price of the property. And this is where I am most uncomfortable. Shortly before Christmas I asked a couple of local estates agents who know the area extremely well what is their view on green stuff. Both came up with the same answer: nice to have but people won't be paying anymore for it. And unless this changes rapidly I am not sure take up of micro generation devices is going to increase.

[desperate]

Ted said..

The difference here is that, due to the conditions that DECC have put on FITs, the seller can be held to ransom.  

What do you do if every potential buyer cottons on to the fact that they can say "I don't want it. Take it off and knock £xk off the price."  They know that you are stuck in a relationship that doesn't allow the PV, or whatever, to be moved to your new house.  You argue that "there's still 20 years FITs income left that you will get that is worth £xk."  "Tough luck" they say. The seller has no bargaining power at all - other than maybe strip it off and sell second-hand outside the UK.

If you have already had 10 years FITs payments back then the buyer knows that you have more or less broken even on the capital cost and still won't be willing to pay extra for the house to compensate you for the lost income. That is income that they want to have as the new owners.
This could only change if housing becomes a sellers market again or if your house is especially desirable in some other way.

In the future houses with PV on may sell quicker but are unlikely to get higher prices just due to the PV.

Sorry Ted but I disagree (hope I dont get struck by lightning) that old "what if everyone" arguement isn't really an arguement, not everyone will say take it down, some people will be attracted by the installation and will be willing to take it on. The housing market is huge and there will always be a buyer for any kind of property, also If everyone was likely to demand that a PV installation be removed, then there isn't a market for PV, which is absurd.

I wholehartedly agree with PB that the market will sort out the value of existing installations, what we need to worry about is how to encourage them in the first place and ensure a fair level of subsidy for new and existing installations.

Desperate

[desperate]

Kombi said

Shortly before Christmas I asked a couple of local estates agents who know the area extremely well what is their view on green stuff. Both came up with the same answer: nice to have but people won't be paying anymore for it. And unless this changes rapidly I am not sure take up of micro generation devices is going to increase.

Kombi

I think this will be a diminishing attitude, as your agents said "nice to have", and as prices of energy go up over the years it will get nicer and nicer, and then it will have a real value, just like a Diamond, nice to have and people will pay stupid money for them .

Desperate