With rising energy costs and increasing tenant demand for sustainable living, New Jersey landlords are exploring solar panel installations on rental properties. However, while solar energy can provide long-term savings and increase property value, there are significant legal, financial, and logistical considerations that landlords must navigate before making this investment.
In this detailed guide, we will explore the pros, cons, legal obligations, incentives, and best practices for installing solar panels on rental properties in New Jersey. Whether you own single-family rentals, multi-unit apartments, or commercial rental spaces, understanding the legal framework and financial benefits will help you make an informed decision.
Why Should New Jersey Landlords Consider Solar Panels for Their Rental Properties?
Lower Energy Bills and Increased Net Operating Income
One of the biggest benefits of installing solar panels on rental properties is the potential for lower utility costs. In New Jersey, where electricity prices are among the highest in the country, generating your own energy can lead to significant savings.
If landlords pay for utilities, installing solar panels can help reduce operational costs, improving the property’s Net Operating Income (NOI). If tenants are responsible for utility bills, landlords can still benefit by offering lower energy costs as a tenant incentive, making the rental property more competitive in the market.
Additionally, New Jersey’s net metering program allows property owners to sell excess electricity back to the grid, further increasing savings.
Enhanced Property Value and Marketability
Homes and rental properties with solar panels are more attractive to environmentally conscious tenants. With growing awareness of climate change, renters—especially millennials and Gen Z tenants—are actively seeking sustainable housing.
Studies have shown that homes equipped with solar panels tend to sell for more than comparable homes without them. For instance, a 2019 Zillow study found that homes with solar panels sold for about 4% more on average than comparable homes without solar panels. More recent data from a 2024 SolarReviews study indicates that homes with solar panels sold for about 6.8% more on average than homes without solar panels. This suggests that solar installations can be a key differentiator in the housing market, potentially enhancing property value and appeal to prospective buyers. In the rental market, solar panels can be a key differentiator, helping landlords:
- Attract high-quality tenants looking for long-term leases.
- Increase rental rates due to added energy savings benefits.
- Position properties as modern, eco-friendly homes, giving landlords a competitive edge.
Tax Credits, Rebates, and Financial Incentives for NJ Landlords
New Jersey offers some of the most generous solar incentives in the country, making solar installations more affordable for landlords. Key programs include:
1. Federal Investment Tax Credit (ITC)
Landlords installing solar panels can deduct 30% of installation costs from their federal taxes. This can lead to thousands of dollars in savings on solar installations.
2. New Jersey Solar Renewable Energy Certificates (SREC-II Program)
The SREC-II Program allows property owners to earn Solar Renewable Energy Certificates (SRECs) for every megawatt-hour (MWh) of solar energy produced. These credits can be sold to utility companies, generating passive income for landlords.
3. New Jersey Net Metering
Under NJ’s net metering laws, landlords with solar panels can sell excess electricity back to the utility grid at retail rates, effectively lowering future energy costs.
4. Property Tax Exemptions for Solar Installations
New Jersey law exempts solar panels from property tax assessments. This means that even though solar panels increase property value, they won’t increase property taxes.
5. PSE&G and NJCEP Solar Loans & Grants
Landlords may qualify for low-interest solar loans or grants through New Jersey Clean Energy Program (NJCEP) and PSE&G, helping reduce upfront installation costs.
Challenges of Installing Solar Panels on Rental Properties in New Jersey
Upfront Costs and Return on Investment (ROI)
While incentives help, installing solar panels can still cost between $15,000 and $30,000 per rental property, depending on system size and complexity. Landlords must evaluate:
- How long it will take to recoup the investment through energy savings and tax credits.
- Whether to finance, lease, or purchase the system outright.
- Long-term benefits vs. short-term cash flow impact.
For landlords with multiple properties, this can require a significant capital investment, making solar leasing or Power Purchase Agreements (PPAs) more attractive options.
Who Gets the Financial Benefits: Landlord or Tenants?
One challenge landlords face is how to structure solar savings. If tenants pay their own electric bills, they receive the financial benefits, while the landlord covers installation costs.
To address this, landlords can:
Increase rent slightly to reflect tenant energy savings.
Implement “green leases”, which outline energy-sharing agreements.
Install sub-metering systems, allowing landlords to charge tenants for solar electricity usage.
Legal Considerations and Lease Agreement Modifications
New Jersey landlords must comply with state laws and lease agreement terms when installing solar panels. Some key legal points include:
- Tenant Consent Requirements: If tenants pay their utility bills, they may need to agree to changes in energy supply.
- Lease Addendums: Landlords should include a solar energy clause detailing:
- Responsibility for solar maintenance & repairs.
- How solar-generated energy will be billed.
- Tenant expectations for energy usage.
- HOA and Zoning Restrictions: Some properties may need Homeowners Association (HOA) approval or special permits.
A real estate attorney can help draft lease modifications to ensure compliance with New Jersey landlord-tenant laws.
Step-by-Step Guide to Installing Solar Panels on Your NJ Rental Property
Step 1: Conduct a Feasibility Study
Assess your rental property’s roof condition, energy needs, and solar potential. South-facing roofs with minimal shade provide optimal solar efficiency.
Step 2: Explore Financing and Incentive Programs
Research solar tax credits, NJ SREC incentives, net metering, and financing options to determine the most cost-effective investment strategy.
Step 3: Obtain Permits and Approvals
- Verify local zoning laws and building codes.
- Obtain utility company approval for grid interconnection.
- If part of a HOA, secure necessary approvals.
Step 4: Choose an Installation Company
Work with a licensed New Jersey solar contractor who can handle:
- Solar panel system design and engineering.
- Permit applications and utility interconnection.
- Ongoing system maintenance and monitoring.
Step 5: Modify Lease Agreements and Inform Tenants
Before installation, update rental agreements to reflect solar billing and maintenance responsibilities. Clearly explain how tenants benefit from solar energy savings.
Legal Assistance for NJ Landlords: Sammarro & Zalarick PA
Navigating the legal complexities of solar panel installations, lease modifications, and tenant agreements can be challenging. The experienced attorneys at Sammarro & Zalarick PA specialize in New Jersey landlord-tenant law, offering services such as:
- Landlord-tenant disputes over utility billing
- Property tax exemptions and solar incentives
- Zoning and permit approvals for solar panels
- Commercial and residential lease modifications
Is Solar a Smart Investment for NJ Landlords?
Solar energy offers significant financial and environmental benefits for New Jersey rental property owners. However, landlords must carefully weigh the upfront costs, tenant billing structure, and legal requirements before making the switch.
By leveraging state incentives and legal guidance from Sammarro & Zalarick PA, landlords can maximize solar benefits while ensuring full compliance with New Jersey’s landlord-tenant laws.