Power Purchase Agreement Questions

[J.P.M.]

It comes down to choice. Having a lengthy history that recalls with experience the boom and bust cycles that hit real estate here in California (1979, 1989, 2006), as interest rates rise I suspect buyers will be in the driving seat when it comes to sales prices so it may be worth the time bargaining hard on agreeing to assume this preexisting seller's obligation. That's my $0.02.

That PPA//lease/whatever it is can be a strong arrow in the buyer's quiver if they can keep emotion out of their mind.

[Ampster]

It comes down to choice. Having a lengthy history that recalls with experience the boom and bust cycles that hit real estate here in California (1979, 1989, 2006), as interest rates rise I suspect buyers will be in the driving seat when it comes to sales prices so it may be worth the time bargaining hard on agreeing to assume this preexisting seller's obligation. That's my $0.02.

Yes, as interest rates rise the market softens.

[slinthicum]

It comes down to choice. Having a lengthy history that recalls with experience the boom and bust cycles that hit real estate here in California (1979, 1989, 2006), as interest rates rise I suspect buyers will be in the driving seat when it comes to sales prices so it may be worth the time bargaining hard on agreeing to assume this preexisting seller's obligation. That's my $0.02.

[Mike90250]

the Vendor and their room full of lawyers, can hide/obfuscate a lot in 40 pages.

[Ampster]

....... There are actually two documents that together make it a lien, a "security agreement" and a UCC-1. What the UCC-1 does is provide constructive or actual notice of a potential security interest in what may be potential personal property that may be affixed to real property. .....

It is probable that in 40 pages of a document there is language that resembles a security agreement, I recall similar language in a shorter Solar City agreement that my daughter and her husband assumed four years ago.

The real question is what will a title insurer demand in order to not show the UCC-1 on the title policy they issue? My past experience has me feeling confident that the insurer won't ignore a UCC-1, if its search discovers it and we are talking about the lender's request for the issuance of an ALTA title policy that includes "off-record matters" the title search discloses.

Ron_CA is waiting for the title report. Again my experience with another similar situation was that the UCC-1 did show up. No subordination was needed but my daughter and her husband were required to assume the agreement. Their income and the Loan to Value ratio were such that the monthly payments did not negatively impact the loan service ratio which the lender was looking for. .

[slinthicum]

I appreciate that a UCC-1 filing can be troublesome for someone with a lease or a PPA, and in spite of what mortgage slugs and other ignoramuses may try to cram down people's throats, a UCC-1 filing is not a lean. It simply and only means that the solar company has a right to the ownership of the solar equipment on that real property.

In a past life I was in-house counsel for a California title company. You are correct that by itself a UCC-1 is not a lien (not a lean). There are actually two documents that together make it a lien, a "security agreement" and a UCC-1. What the UCC-1 does is provide constructive or actual notice of a potential security interest in what may be potential personal property that may be affixed to real property. As to whether that personal property has been converted to real property is sometimes an interesting question, with the typical appropriate answer: "it depends." Is it a fixture or a trade fixture? Has it been permanently attached?

The real question is what will a title insurer demand in order to not show the UCC-1 on the title policy they issue? My past experience has me feeling confident that the insurer won't ignore a UCC-1, if its search discovers it and we are talking about the lender's request for the issuance of an ALTA title policy that includes "off-record matters" the title search discloses.

[J.P.M.]

I agree, but for the purposes of any financial analysis it is the numbers that matter, assuming the risk management issues are not significantly different. In either case it results in a chattle mortgage (UCC filing) on the property that may affect how the lender underwrites a loan.

Well, to say that financial analysis is all about numbers seems a lot more that redundant or at least a resounding blast of the obvious. Is there financial analysis that isn't about numbers ? Kind of like saying swimming is about getting wet.

But to me. whether or not the risk management issues are significantly different is something better investigated than assumed, and there are other things in the buying process ahead of going to a lender. While mortgage issues are certainly important, there are other things to decide before that, like do I want the house under the existing conditions, and if so, for how much, and if I do want it, what tools do I have to help me get the best deal.

I appreciate that a UCC-1 filing can be troublesome for someone with a lease or a PPA, and in spite of what mortgage slugs and other ignoramuses may try to cram down people's throats, a UCC-1 filing is not a lean. It simply and only means that the solar company has a right to the ownership of the solar equipment on that real property.

Also, I thought a chattle mortgage was the type of mortgage that is used to describe a mortgage used to purchase (re)moveable property.
For the purposes of this discussion, the two linked operative words there being purchase and property.

A solar lease is not a purchase. It's renting something. Rent is not a mortage payment.
In a power purchase agreement, there is no purchase of property by the homeowner, moveable or otherwise, only the purchase of power. I've been around power, it's transformation, distribution and control for about 2/3 of my life and I've never seen a definition of power that used the word "property" as one of the descriptors. Power, while it can be called moveable (the time rate of work, with work being defined as moving a force through a distance), and while it can have value, isn't property - at least not real property.

[Ampster]

The OP's daughter is considering buying property with a Power Purchase Agreement, not a lease.
The two are not the same thing......

I agree, but for the purposes of any financial analysis it is the numbers that matter, assuming the risk management issues are not significantly different. In either case it results in a chattle mortgage (UCC filing) on the property that may affect how the lender underwrites a loan.

[Ampster]

The PPA specifically say Power Purchase Agreement but in the body of the agreement says "the lease" a couple of times. I haven't had time to reread it again but will tonight.

As I said earlier the distinction has become blurred. The important issue is the financial impact. Depending on your daughters cost of funds it could be a good deal. If in California with an expectation of increasing rates it could also be a good hedge, especially if she can manage consumption around TOU rates.

[Ron_CA]

Yes nothing recorded at the County Recorders office but a UCC filing for sure. Did it show up on title report as UCC filing?

Haven't seen title report yet.

[Ampster]

The agreement states that there won't be any lien put on the property but bet they will file a UCC

Yes nothing recorded at the County Recorders office but a UCC filing for sure. Did it show up on title report as UCC filing?

[Ron_CA]

1.) My guess would be the age of the roof is unknown at this time. If the roof needs work/replacement, that's on the property owner unless the leak or other problem(s) develop from adding the array. Then, the equipment owner is responsible. The rub is in determining the cause of the problem.

2.) For residential PPA's involving PV systems in the U.S., usually nothing.
In the usual/common PPA, the agreement is that the homeowner agrees to buy all the power the array produces for what's usually a fixed price per kWh. In most agreements, there are no other charges to the user unless they're something like local taxes, etc.

That 18,234 kWh/yr. is no more than an estimate of annual system output. That number and the array size in STC kW was probably based on annual usage or something close to that amount. And/Or, some PPA's will quote a guaranteed annual output with a bunch of exceptions that contribute to the 40 or so pages of boiler plate and make the guaranteed annual output so low the customer will probably trip over it.

3.) Again, in the U.S. for residential PPA's involving PV systems, the terms of the agreement between the homeowner and the POCO are unaffected by any PPA agreement between the homeowner and a 3d party energy provider.

See Wikipedia for some details and particulars on 2 & 3 above.

House was built in 2003 so 19 years on the roof.
The seller of the house asked for an upsized system and that is how they came up with the size of the setup.

[Ron_CA]

The OP's daughter is considering buying property with a Power Purchase Agreement, not a lease.
The two are not the same thing.
With a lease you "rent" the equipment for a fixed amount.
With a PPA you buy the power produced by the equipment the owner of the equipment puts on your roof at a fixed price per kWh.

This agreement actually gives you a rebate @ .115 if you use less energy than you produce.

[Ron_CA]

Looks like the OP may have a lot of the old confusion about the difference between a PPA and a lease.

Sunrun does both.

Ron C: Which is it ?

The PPA specifically say Power Purchase Agreement but in the body of the agreement says "the lease" a couple of times. I haven't had time to reread it again but will tonight.

[Ron_CA]

That is an important issue. The PPA that my daughter assumed in California, was a Uniform Commercial Code filing and did show up on on the preliminary title report, However if I remember correctly it may have had a no defeat clause that effectively subordinated it to the lien of a first mortgage. Their lender, title company or both, did review the PPA. My daughter and her husband put down at least a 30 percent down payment and that may have also given the lender some comfort.

The agreement states that there won't be any lien put on the property but bet they will file a UCC