In Texas, title insurance forms are promulgated by the Texas Department of Insurance (the “TDI”), with policy types, premium amounts, and the issuance of endorsements being regulated by standardized procedural and rate rules. Thus, title deliverables required for debt and equity financing transactions tend to be generally uniform in Texas renewable energy transactions.
A typical debt financing transaction for a Texas energy project will include both the issuance of a Form T-2 Loan Policy of Title Insurance (the “Loan Policy”) and a Form T-1 Owner’s Policy of Title Insurance (“Owner’s Policy”). Commonly, Texas developers seek those simultaneously to claim a simultaneous issuance credit pursuant to Rate Rule 5 (which provides that if an Owner’s Policy is issued at the Basic Rate (being the premium amount) simultaneously with a Loan Policy, the Loan Policy will be issued for $100.00, plus the cost of endorsements, provided that the other requirements set forth in Rate Rule 5 are met).
In the case of debt financing, an ALTA Survey depicting the location of proposed project improvements is also obtained and referenced in the Loan Policy and Owner’s Policy. A lender will also receive a T-3 Date Down Endorsement at every draw on any related construction loan (which will (1) bring forth the date of the title policy, (2) list any additional exceptions, and (3) increase the coverage under the Loan Policy to reflect the value of the construction loan draws).
In the context of a wind project, if a tax equity investor invests in a project after a debt financing transaction has closed, then at the time of the funding (when the tax equity investor becomes vested with an interest in the developer), the Owner’s Policy is typically re-issued, with a credit issued for the prior Owner’s policy pursuant to Rate Rule R-5(C). A then-current ALTA Survey depicting the as-built locations of all the improvements of the project is also obtained for reference in the Owner’s Policy. The Owner’s Title Policy is then typically re-issued (because most title companies that issue title policies in Texas interpret the TDI procedural rules as prohibiting T-26 (Additional Insured) and T-24 (Non-Imputation) Endorsements being issued via any T-3 Date Down Endorsement). However, some title companies interpret the rules differently and there are some instances where, at tax equity funding, a T-3 Date Down Endorsement which includes the T-26 and T-24 Endorsements, rather than a re-issued Owner’s Title Policy, is the title deliverable; however, tax equity investors typically prefer (and generally require) the re-issued policy.
Tax equity transitions within a solar context are typically structured in three phases: (1) execution of the Equity Capital Contribution Agreement (“ECCA”), (2) mechanical completion funding, and (3) substantial completion funding. As is the case in the context of wind projects, tax equity investors typically require a re-issued Owner’s Policy at funding (typically in connection with mechanical completion funding, but on occasion, substantial completion funding). Title and survey deliverables for solar tax equity transactions are set forth below.
|Common Title/Survey Deliverables:||Alternative Title/Survey Deliverables:|
|ECCA Execution:||Title Policy and a Survey depicting the proposed locations of the project improvements||Same|
|Mechanical Completion Funding:||Re-Issued Title Policy with T-26 (Additional Insured) and T-24 (Non-Imputation) Endorsements and a then-current Survey depicting the as-built locations of all of the improvements of the project then-existing||T-3 Date Down Endorsement adding T-26 (Additional Insured) and T-24 (Non-Imputation) Endorsements and No Survey|
|Substantial Completion Funding:||T-3 Date Down Endorsement and Final As-Built Survey (60 days after Substantial Completion Funding)||Re-Issued Title Policy with re-issued T-26 (Additional Insured) and T-24 (Non-Imputation) Endorsements and As-Built Survey (at Substantial Completion Funding rather than 60 days after)|
|180 Days After Final Completion:||T-3 Completion of Improvements Endorsement||Same|
As indicated above, 180 days after final completion of a renewable energy transaction, a T-3 Completion of Improvements Endorsement will be issued which most notably (1) updates the title policy to reference the As-Built ALTA Survey and (2) deletes the general mechanic’s lien exception contained in the title policy.
Although every renewable energy transaction is different, and some can have unique title deliverable issues, most renewable energy transactions in Texas typically adhere to the sequence of title deliverables set forth above.