With the passage of Assembly Bill 32, the State set ambitious goals for reducing carbon emissions from existing buildings and increasing their alternative energy use and improving energy efficiency. Many California cities and counties have also set their own greenhouse gas reduction targets.
PACE or Property Assessed Clean Energy
PACE is a program that provide financing for the installation costs of energy efficiency, water efficiency and renewable energy improvements through proceeds derived from the sale of bonds. The bonds are repaid through a contractual assessment which is represented by a new line item on participating property owners’ property tax bills over 5 to 20 years. The program is completely voluntary, so property taxes remain unchanged for those who do not choose to participate.
Property owners can help local governments achieve greenhouse gas reductions and reduce water use. At the same time, they can save money by investing in renewable energy, as well as energy and water efficiency improvement.
PACE Qualification Criteria
- The property to be improved must be located in a PACE Program jurisdiction and must be eligible to pay property taxes.
- In some cases, the property owner must obtain the written affirmative acknowledgment of existing mortgage lenders, whose consent is required for further encumbrance.
- All owners, or their legally authorized representatives, must sign the Program documents.
- The financed improvements must be Authorized Improvements and must be installed by an appropriately licensed contractor like K12 Solar.
- The property owner must certify that it (and its corporate parent if the property owner is a single-purpose entity) is solvent and that no proceedings are pending or threatened in which the property owner (or the corporate parent, as applicable) may be adjudicated as bankrupt, become the debtor in a bankruptcy proceeding, be discharged from all of the property owner’s (or corporate parent’s, as applicable) debts or obligations, be granted an extension of time to pay the property owner’s (and the corporate parent’s, as applicable) debts or be subjected to a reorganization or readjustment of the property owner’s (and the corporate parent’s, as applicable) debts. The property owner must also certify that the property owner (or any corporate parent if the property owner is a single-purpose entity) has not filed for or been subject to bankruptcy protection in the past three years.
- The property owner must be current in the payment of all obligations secured by the subject property, including property taxes, assessments and tax liens and have had no delinquencies within the past 3 years (or since taking title to the subject property if it has been less than 3 years). The Program Administrator may review public records, including the real property records, to verify compliance with this requirement.
- There must be no notices of default or foreclosure, whether in effect or released, due to non-payment of property taxes or loan payments filed against the subject property within the last 5 years (or since ownership, if less than 5 years). Exceptions may be granted on a case-by-case basis.
- The property owner must have no involuntary liens, defaults or judgments applicable to the subject property. The Program may review public records, including the real property records and court documents, to verify compliance with this requirement. A property owner with an involuntary lien(s) ,default or judgment may be allowed to participate in the Program if it can demonstrate an acceptable reason for the lien, default or judgment and a path for resolution along with supporting documentation. The assessed value of the property plus the value of the Authorized Improvements to be financed by the Program must be equal to or greater than the sum of (i) the total private property debt including mortgages and equity lines of credit secured by the property, (ii) the principal amount of any Program indebtedness attributable to the property, and (iii) the aggregate principal amount of any fixed assessment liens or special tax debt on the property. If the property does not pass the above test with the assessed value, a property owner may, at its own cost, use an appraised value determined by an Appraiser or market value calculated according to a method identified by the Program. The appraisal must be dated no earlier than 90 days before the financing date. Property owners with properties that have a mortgage(s) should approach the mortgage lender(s) for consent prior to ordering an appraisal, in case the mortgage lender has a specific appraisal requirement.
- The total sum of all items appearing on the property’s annual property tax bill including annual ad-valorem property taxes, special taxes and assessments, in addition to the contractual assessment to be levied in connection with the Program, may not exceed 5% of the property’s market value. For the purposes of demonstrating value for this requirement, market value will be measured using assessed value plus the cost of the improvement. If the property does not pass the above test with the assessed value, a property owner may, at its own cost, use an appraised value identified by a Program-approved appraiser or market value calculated according to a method identified by the Program. The appraisal must be dated no earlier than 90 days before the financing date. Property owners with properties that have a mortgage should approach the mortgage lender for consent prior to ordering an appraisal, in case the mortgage lender has a specific appraisal requirement.
- The PACE lien amount (which is the amount requested for financing) is typically 20% or less than the assessed or appraised value of the property, whichever is higher. PACE offers flexibility on this requirement where the property strongly meets other eligibility criteria, warranting exception. Specialty properties may have more stringent lien-to-value (LTV) requirements.
- The property owner must certify that it is not party to any litigation or administrative proceeding of any nature in which the property owner has been served, and that no such litigation or administrative proceeding is pending or threatened that, if successful, would materially adversely affect the property owner’s ability to operate its business or pay the contractual assessment when due, or which challenges or questions the validity or enforceability of the Assessment Contract or any other documents executed by property owner in connection with the Program.
- The Program involves issuance of bonds ; the bonds are secured by a contractual assessment. Therefore, it is important that property owners pay their contractual assessment and other property-related obligations in full on a timely basis or risk property foreclosure. Consequently, the Program reserves the right to request additional information in its sole discretion and to deny applications