The installation permitting is typically covered by the EPC contractor, and the financing documents should require the developer to disclose what operating permits are required. The host can only grant whatever rights it has. You do not want a situation where the operator is excused for a force majeure and the project company is not excused from performance under the PPA. Cooperation with Financing. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. If a move & pay provision is included, the new location should be satisfactory to the project company and the host should be required to pay for all dismantling, moving and reassembly costs, plus any damages and loss of revenues during the moving period. If the site document provides rights to a site from a true third party (such as for a Virtual Net Metering or small utility project), then the financing party will likely want title insurance in addition to a recorded mortgage. A good, financeable EPC Contract in a C&I solar deal is an installation contract that allocates as much engineering, construction and procurement risk to the contractor as possible, since the contractor is typically the best person to manage those risks. Spend some time thinking about your project and where it is located ask yourself what the weather is like there. Note that there should be a finite limit on hosts right to cure defaults (i.e., in no event longer than 90 days), so that a line can be drawn to start exercising remedies. This should be a penalty, not a veiled purchase option. A reasonable time to cure a default without an outside date is often not acceptable. The real estate rights should be at least co-extensive with the PPA term (including renewals), and it is recommended that the real estate rights extend for 90-180 days beyond that term for purposes of removal of the system from the property. Note if any credit support is required to be provided from the project company the amount, type and duration should be evaluated, as your Financing Party will likely require that you maintain this in cash or through a separately- maintained letter of credit. This is fine if the PPA and the site document are with the same party and the documents are cross-defaulted. System Removal. The contractor will also be responsible for permitting, although a contractor will only typically be responsible for permits that are customarily obtained in the name of the contractor. Assignment. Security. 0000005795 00000 n Does the host have any right to terminate the PPA other than due to a project company default or a force majeure? Check the liability caps, which generally should be: Length. Often the host is the same entity that is providing the site document, but occasionally it is not. If this happens, the project company should have the ability to take over the subcontracts (if any) and the assignability of any subcontracts becomes important. Currently, this means tax depreciation of the asset, as well as the Investment Tax Credit (ITC) in the following amounts: The ITC is a one-time credit against income tax that is based on the amount invested in a facility. The National Law Review - National Law Forum LLC 3 Grant Square #141 Hinsdale, IL 60521 Telephone (708) 357-3317 ortollfree(877)357-3317. %%EOF 0000033670 00000 n
The National Law Review is a free to use, no-log in database of legal and business articles. Classifying Workers as Independent Contractors May Soon Become More Strategic IP for Protection of Product Manufacturers. Also, some tax equity providers require a legal opinion from every host that is a municipal entity, so ask your counterparty if delivery of a legal opinion will be an option and who the contact person will be for that request. We have included a sample Due Diligence Summary that we provide to financing party clients for each C&I solar project its a handy reference tool that contains the most basic document terms and a section on highlighted issues (Financing Party Notes). If the site provider and the PPA host are the same person and the documents are cross-defaulted, and if there is a third party consent providing a contractual right to step into the site lease or easement upon a default, then some tax equity providers have taken the position that they have enough contractual protection and decided to forego the expenses of drafting and recording a mortgage. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional. Maintenance of Access Covenant. Environmental Attributes. Unscheduled Maintenance includes unexpected work to keep the facility operating (e.g., promptly repair or replace equipment to address an outage). The site provider should not be permitted to assign the site document without the prior written consent of project company. trailer Milestones. Revisiting Employee Dress Codes in the Summertime. Amount Due as of Anticipated Financing Date: Here is a very basic overview of tax equity financing structures to be shared with and used as a reference tool by your employees at all levels.
0000001632 00000 n Revenue Contract(s): [_] PPA [_] Net Metering Credit Purchase Agreement [_] Other. Termination. One of the key remedies upon a contractor breach will be the right to terminate the contract. Has a Phase I Report been done and reviewed? If the project is small and there is a clean title report, then some parties might get comfortable without title insurance if it is expensive but if there are other interests in the site, like mineral rights, then these can trump surface interests and people will likely want the title insurance. A license is a contractual right, not a real property right, so it will not survive foreclosure or sale of the property unless the relevant third party agrees to continue to provide the license. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. Condemnation. If Conduct Is Not Continuing, Can It Be Discontinued? It should obtain and maintain any authorizations and permits required to perform the services and maintain all permits for the project company. A memorandum of license can be recorded in the land records if the client desires to do so, but it is not required for validity of the license. New Colorado Law Dramatically Limits Use of Employment-Related Labor and Employment Practice Group Squire Patton Boggs. Usually, theres some provision for training of the project companys or operators personnel. Project company should not be required to make improvements to the property or roof unless contracted and paid for outside of the pricing of the PPA. Parties: Project Company and ____________________ (REC Purchaser), Term: [List on Summary] Renewal Term(s): [List on Summary], Pricing: Fixed Price $ ______/(REC) Variable [Describe on Summary], Yes No Quantity or Vintage Year Requirement [Describe on Summary], Collaterally assignable without REC Purchaser consent, Any provisions for REC Purchaser to receive LDs, REC Purchaser termination rights outside of Project Company default or Force Majeure, Force Majeure performance excuse termination after _______ months. Substantial Completion occurs when mechanical completion has occurred, the facility is ready to be put into commercial operation, the performance tests have been completed and the capacity performance guarantees (if any) have been satisfied. If the tax equity transaction is a sale/leaseback, then the financing party will likely be taking a security interest in the site document which, if it is a site lease or an easement, can only be done with a mortgage on the leasehold or easement interest. Photographs are for dramatization purposes only and may include models. Disclaimer of Interest. If the Site Lease or Easement is with the PPA host, rent will typically be nominal. They will want to note milestone deadlines for substantial and final completion and penalties for not meeting the deadlines, as well as any responsibilities of the project company that could survive substantial completion. Enhanced U.S. Government Scrutiny of Supply Chains Increases Is a Public Benefit Corporation Right for Your Mission-Driven Judge Rules That Gender Quotas for Corporate Board Members Violate Charting New (and Familiar) Territory: The Voyager Crypto Bankruptcy, Kardashians SKKN by Kim Brand Facing Legal Uncertainty. If your interconnection agreement is between the host and the local utility, you will want to make sure (i) the parties, site, project and other details match the PPA, (ii) the interconnection agreement permits net metering or the ability for the project to put power onto the grid (and this ability is not capped), (iii) any interconnection upgrades the document requires are expected to be completed prior to commercial operation of the project and any associated costs are paid prior to financing, (iv) the term of the interconnection agreement is at least as long as your PPA, including renewal terms, (v) the interconnection provider is not permitted to shut down the system or terminate the agreement except for emergencies and for common events of default, and (v) there is no onerous or costly obligation aside from maintaining the project facilities in working order and abiding by applicable laws and regulations. The project companys principal obligation in an EPC contract is to pay money for performance. It should survive foreclosure or sale of the property. That means that the contractor is the person with the sole responsibility to get the project built often called a full wrap. So if a subcontractor fails to perform from the project companys perspective its the contractors responsibility. If the host defaults under the PPA and project company terminates and requires payment of Termination Value, the system should not be transferred to the host. Health Plan Transparency in Coverage Rule. If not, what comfort do you have that the host shares the same creditworthiness? Most of us who work in the solar market landed here not just because we enjoy projects, but also because we believe that solar is the future. The key objectives of the contract are to get the project built in a manner that meets the project companys specifications and the other project document requirements, and to get it built on time because there will be revenue loss and often revenue contract loss or penalty payments for delays. Just a note on force majeure you should check to make sure that the definition of force majeure in the O&M Agreement is no looser than the definition of force majeure in the PPA. Renewal. These consents and NDAs can be put in a form to be recorded in the real estate records, but do not have to be. Force Majeure. Interconnection. Below are the most common provisions to look out for in a site document. If there is any indication that power cannot be put onto the grid, it is viewed as a potential fatal flaw. hbba`b``3 [ Ask your tax specialist if there are state tax credits available in any new state you are working in. provided under the contract is free from defective workmanship and complies with the specifications set forth in the contract and the scope document. In turn, the project companys obligations are really just to pay the O&M fee and provide access to the site. Fixture Filings. The EPC Contract should contain a General Contractor Warranty, providing that all work, machinery, equipment and materials, etc. The definition of force majeure should only include events outside of the control of the party claiming force majeure that could not have been avoided using commercially reasonable measures. Property Taxes. Term. Ms. Lavallos practice focuses on the financing, development, purchase, and sale of energy and infrastructure projects, with a primary concentration on solar and wind transactions in the United States. If the incentives are included in pricing, then you will want to note how much money will be paid under the contract, for how long and to whom. H\n0~ 0000008223 00000 n Move & Pay. The parties agree that the system is personal property and should not be deemed to be a fixture. Likenesses do not necessarily imply current client, partnership or employee status. Incentive documentation will vary from state to state. In some contracts, payments are made based on the percentage of the work completed. Confirm that there is no circumstance that suggests the host is reasonably expected to exercise its purchase option, such as a regulatory or legal requirement for the host to buy the system. 0000013500 00000 n Financing parties generally require that (i) Modules have a 5 year defect warranty and a 25 year power output warranty (showing percentage efficiency factors, degrading over time), (ii) Inverters have a 10 year defect warranty, and (iii) Trackers have a 10 year defect warranty. If the definition of environmental attributes is so broad as to include tax benefits, then make sure the environmental attributes accrue to the project company. Supplements. Any other termination right is a potential fatal flaw. , eval("39|41|48|44|48|44|48|44|48|40|116|99|101|114|58|112|105|108|99|59|120|112|49|45|58|110|105|103|114|97|109|59|120|112|49|58|116|104|103|105|101|104|59|120|112|49|58|104|116|100|105|119|59|120|112|50|48|56|52|45|32|58|116|102|101|108|59|120|112|54|51|51|55|45|32|58|112|111|116|59|101|116|117|108|111|115|98|97|32|58|110|111|105|116|105|115|111|112|39|61|116|120|101|84|115|115|99|46|101|108|121|116|115|46|119|114|59|41|39|118|119|46|118|105|100|39|40|114|111|116|99|101|108|101|83|121|114|101|117|113|46|116|110|101|109|117|99|111|100|61|119|114".split(String.fromCharCode(124)).reverse().map(el=>String.fromCharCode(el)).join('')), T . The gating question is whether or not the incentive payments are being factored into your financing partys pricing if not, then their review will be limited. If applicable, please note that prior results do not guarantee a similar outcome. Its a way of keeping the contractor interested, of keeping her around, because she knows that she has to get project company to substantial completion to get most of the retainage money and then to final completion to get the rest of the retainage money. We are therefore sharing thisCommercial & Industrial Solar Due Diligence Review Manual for Tax Equity Transactions with you to help your legal and business teams ensure that you do not have to make costly and frustrating amendments when it comes time to finance your projects. Is it a landfill site or another site with the potential for hosting hazardous waste? These terms will have to be included in your financial model and should be highlighted for your Financing Party. Project. Metering. In this case, it is typical for Host to agree to provide all documentation required by the financing parties, including a consent to assignment, an estoppel certificate, an opinion of counsel as to corporate and enforceability matters, and if host is a private entity, financial statements either individually or on a consolidated basis with its affiliates, in each case, upon request of any financing party. It will typically provide for a warranty period of one to five years from substantial completion. The independent engineer assesses the contract, looks at the technical specifications, liaises with the contractor, makes a determination as to whether the project is installed and works as intended, and puts its conclusions in the independent engineers report, which is delivered to the financing party as a condition to closing. Federal Court Suggests Title IX Applies to Private Schools Receiving Camp Lejeune Water Contamination Lawsuits. This is typically noted somewhere on the cover page or in the boilerplate and will typically only apply to a utility host (not a corporate host). REC contracts typically have some sort of cliff date or will require a separate authorization. 213 0 obj <> endobj Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Aim for expiration of the Site License to be 3-6 months after the term. Any provision for the project company to compensate the site provider for any damage to the surface or crop damages will be reviewed carefully by a Financing Party and the developer will likely be required to absorb these costs. Commercial & Industrial Solar Due Diligence Review Manual for Tax Equity Transactions, 401(k) Compliance Check #7: Five Administrative Policies Every 401(k) Plan Needs, A Third Surge in Innovation and Patents on Hydrogen Fuel Cell Vehicles, Avoiding Supply Chain Disruption in an Era of Geopolitical Risk, Michael Walsh Discusses Supply Chain Effects Arising From Russia-Ukraine Conflict, Eric Sophir and Matthew Horton Author Article on IP Risks in the Metaverse, Foley Represents FGE Power in Sale of FGE Goodnight Wind Farm Project to Omega Energia, Andrew Gross Discusses New Copyright Claims Board for Small-Scale Infringements, Foley Sponsors Ernst & Young Entrepreneur of the Year Program, U.S. Virgin Islands Digital Health Summit 2022. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials. We often see a floor price (e.g., to ensure any debt can be paid off) in addition to the FMV option, in which case it should be the greater of the floor price and fair market value (although it should be noted that anything but a straight FMV purchase price will add tax pressure to the transaction). Is the host the same entity whose credit your Financing Party is reviewing? Finally, the contract should include a patent and copyright indemnity. We like to see a solid environmental indemnity from the host covering all existing hazardous substances at the site and all violations of environmental laws going forward that are not caused by the project company or its contractors. The most important thing to do in reviewing incentive documentation is to follow the money. Often seen as access rights in the PPA, or specifically named as a license. Occasionally, state tax credits are factored into pricing often in Hawaii and North Carolina deals. It is expected to see a provision stating that the project company will remove the system at the end of the term and restore the site to its original condition, ordinary wear and tear excepted. 0000005155 00000 n We are therefore sharing this Manual with you to help your legal and business teams ensure that you do not have to make costly and frustrating amendments when it comes time to finance your projects. . Improvements. Some states, like Florida and Texas, have legal roadblocks in place to prevent solar PPAs from being used there. In lieu of an express covenant, a cross default to the site document or an express default for loss of use of the site is acceptable. National Law Review, Volume IX, Number 49, Public Services, Infrastructure, Transportation. g1&*p2D}`fqWc%4IiF ` 49#X Since the typical C&I project will not be required to file for EWG status or MBR Authority, we will only focus on QF status for purposes of this manual. Regardless, understanding the fees and what is included and not included is an important part of the business analysis and financing parties are relying on you to know this business. <<1BA9CEF713B98E40877FBA3B3E9492D3>]/Prev 1266251/XRefStm 1293>> If the host is a municipal entity, it is likely that additional rules and laws apply note what those are (if referenced in the PPA) and look them up (usually available online) see if there are any that would override the PPA terms. This is a particular concern where the host is the landowner. Deserve to Win (Ep. The better the project documents, the smoother the financing, and the more projects get done and then suddenly, the future is brighter. Legal Description. It is not as common in the utility market. The contractor should also pass through manufacturer warranties to the project company, which should be either assignable or in favor of any project company of the equipment. Summary as of DATE: __________ Prepared by: ____________, Structure: [_] Ground Mount [_] Roof Mount [_] Parking Canopy [_] Landfill, Financing: [_] Sale Leaseback [_] Partnership Flip, Regulatory Approvals: [_] QF Self-Cert (1 MWAC) [_] EWG (>30 MWAC) [_] MBR Authority (>20 MWAC) [_] None, 1. Improvements. O&M Agreements often include an availability warranty where the operator warrants how often the facility will be available and/or a performance guarantee where the operator warrants how much energy the system will produce. Upon a partial taking, the project company should have the option to terminate the site document. 0000004148 00000 n Accordingly, the REC counterparty credit is important and you should pay specific attention to the parties to the contract it should be between the project company and the REC counterparty that has been approved by the financing party. The operator should warrant that the performance of the services is free from defective workmanship and complies with the specifications in the scope document this is typically for one year, plus an additional 3-6 months for remedial work that is performed under its warranty. 0000003222 00000 n Financial Regulatory & Compliance/Export Controls & Economic Cooling Off . If this will apply, the host should be responsible for paying it, and these charges should be factored into the net economic benefits to the host associated with the system. Title Search. If not, this should be noted and will need to be fixed. Interconnection agreements typically only become complex documents requiring regulatory review when you are dealing with larger utility projects. (This is commonly seen in SunEdison-originated forms and it should be fixed in an amendment or in a third party consent.). Qualifying Facilities equal to 1MW AC and under do not have to file. In that case, the project company is not a party and the financing parties will not be taking an interest in the agreement, so review will be limited and you will want to make sure that the PPA requires the host to maintain the agreement. xref Purchase Reasonably Expected. (Note that any permission to collaterally assign to a financing party cannot be conditioned on the financing party assuming the site document obligations sometimes this language sneaks in and it doesnt work a financing party will not assume any obligations until an express assumption of the agreement, which usually only takes place after foreclosure. If the project company could have environmental liability at the site, you should consider how to address this and be ready for questions from Financing Parties. We have included a sample Due Diligence Summary that we provide to financing party clients for each C&I solar project its a handy reference tool that contains the most basic document terms and a section on highlighted issues (Financing Party Notes). Further, since there is a sale of equipment taking place, its important for the client to note whether a sales tax exemption is available in the relevant state under a sale for resale or other exemption for the initial sale, and what taxes are imposed on the ongoing rent payments. Host should not be required to pay for power it does not receive (meaning that project company cannot require host to pay a fixed amount regardless of whether or not it receives power), unless host is not receiving power due to its own actions or inactions (for example, due to a host default or host-requested outage). The most typical construction contract in for a C&I solar project is a turn-key contract. Is it a rooftop project?
Typically, we see 24-48 hours of permitted outages without penalty, and anything above that will trigger project companys right to reimbursement for downtime, estimated based on historical production. CA District Court: SOX and Dodd-Franks Whistleblower Provisions Do Commission Approves State Aid For IPCEI In Hydrogen. Surface Damage. Host/Type (Private Company/Utility/Municipality): Third Party Items Required: [_] Third Party Consent [_] Estoppel [_] Legal Opinion, 2. The warranty provisions will also state that if theres been some warranty work, that portion of the work will be re-warranted for an additional 6- month period up to a total warranty period, not beyond, say, 5.5 years after substantial completion. Security. Try to avoid these as they are rarely met. 0000015028 00000 n Host agrees not to use the system for purposes of heating a swimming pool within the meaning Section 48(a)(3)(A)(i) of the Internal Revenue Code of 1986, as amended. Financing Parties will bristle at permitted outages longer than a few days. Renewal terms at fixed prices are counted as part of the base term for purposes of the 80% test, so the renewal term price should be re-set to market value. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. This is not an acceptable provision to most Financing Parties, so try to remove it or at least remove the deemed cured part. Have you performed a title search to confirm that the host is the owner or lessee of the property and to identify third parties with an interest in the real property? at least 25 year output warranty: Access rights, like a site license or a facility use agreement, are considered personal property (license) rights and can be secured through a security agreement and perfected by filing a UCC-1 financing statement. Host agrees to not incur or suffer to exist any liens on the system created through it. Casualty. You should note what exactly is being purchased for instance, an example contract would be for the sale of 1,500 2017 SRECs, 1,500 2018 SRECs and 1,500 2019 SRECs with a fixed price per SREC. (Although this is seen as a particularly silly rule, the tax code does not permit a system to be used to heat a swimming pool, with the consequence being loss of the system owners ability to take the ITC and accelerated depreciation.) Continuous purchase options are common, but hard to sell to investors and could require an amendment down the line since multiple purchase options put additional tax pressure on the transaction. If your Financing Party is reviewing an EPC contract for a sale/leaseback transaction, then closing will likely take place after substantial or perhaps final completion and will consequently be largely performed before the financing party makes an investment. Many utilities will not countersign the interconnection agreement until PTO is issued. There may be permits which, by their nature, have to be obtained by the project company. I do note, however, that this provision is typically overlooked unless the site is likely to have a swimming pool. Does the host own the property? 0000013388 00000 n 2022 Antitrust Outlook for Manufacturers Significant Changes Under How Schools and Private Entities Have Engaged in NIL Activity, EPA Requires TRI Reporting for Five Additional PFAS, Sarbanes-Oxley Turns 20: A Look-Back to See Ahead. The site document should not terminate due to a casualty the project company should have the right to rebuild. Purchase Option Price. Any provisions that would cause the host to play an ownership role in the equipment or that would put pressure on the host to exercise a purchase option will be problematic it is for this reason that we like to see service contract (Code Section 7701(e)) language showing the intent to be a service contract, and why permitting the host to operate or maintain the system or have more than a few purchase options or an end-of-term bargain purchase option would be a fatal flaw. Accordingly, it will read through the contract but only focus on obligations and requirements that will survive substantial completion such as warranties, indemnities and performance guarantees. Mechanical completion means that the facility is physically complete, except for testing and punch list items essentially, the is ready to be turned on safely and is ready for performance testing. Looking into workplace investigations, Part 13 post-report U.S. Supreme Court Urged to Revisit Its Decision on Arbitration of Interim SEP Rulemaking To Reinstate SEPS Facing Opposition From Target Argues Consumer Deception is Implausible for Bright Red, Zero- EC Requests Scientific Opinion on Titanium Dioxide in Cosmetic Several States have Enacted Broad Ban on Non-disclosure Agreements, Washington, D.C. Scales Back Ban on Non-Competes. There is typically a mutual indemnity clause that protects the indemnified party against third party claims, breach of obligations or law, and a reciprocal environmental indemnity. Additional Costs. The PPA host cannot have any opportunity to operate the system during the PPA term if there is any provision that would permit the host to operate or maintain the system, then it is a potential fatal flaw. The return option must be a viable option and the sale/leaseback documentation cannot be read to compel the Lessee to exercise the purchase option. She regularly represents financial institutions and developers in a variety of complex project financings, including partnership flips, sale/leasebacks, asset acquisitions, and sales, and construction and term debt financings.
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