The Law of Wind: A Guide to Business and Legal Issues

The Law of Wind: A Guide to Business and Legal Issues

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Title Insurance and Survey Matters

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Developing a wind energy project requires the developer to own or control the land on which the project is to be sited. Large wind projects are not generally developed by the actual owner of the underlying land. Accordingly, the most common means to establish the land rights for the project on a particular parcel or parcels of land are a lease or an easement (or a combination of the two). If title to the project lands fails during or after construction of the project (or after the wind developer becomes obligated to third parties with respect to project development or operation), losses and defense costs to the developer would be significant. Accordingly, in addition to all of the other investigations and due diligence efforts that go into evaluating a project site and project feasibility, developers typically conduct a thorough search and examination of title to the project lands and purchase a policy of title insurance representing the amount of its investment in the project real estate and improvements. A survey of the project lands showing easements and encumbrances, improvements, setbacks, and physical features important to the siting, construction, and operation of the project (and the proposed site plan for pending projects) is also a valuable and necessary tool in the title review. This approach applies as well to an acquisition of, investment in, or financing of an existing wind energy facility.

This chapter will briefly outline certain points a wind energy developer, purchaser, investor, or financing party should consider to minimize or to spread the risk of loss arising out of a failure of or defect in title to land, and to effectively manage the expense of doing so.

I. Selecting a Title Company.

A. Relevant Factors to Consider. There are many title companies doing business throughout the country. It is important to understand the role a particular company plays in the industry before deciding whether and how to do business with that company. Not all title companies or offices are equally experienced in or equipped to handle the large scale, multi parcel transactions that constitute the typical wind farm project. Also, not all states offer the same coverages. Commercial title insurance as we know it is not even offered in Iowa, which has a state sponsored title program available. As a work around for Iowa projects, developers often make arrangements with a title company outside of the state to provide coverage under a more typical American Land Title Association (“ALTA”) commercial policy. (ALTA policies are discussed briefly below.)

Working with a regional or national title services division of one of the major title companies with broad experience in wind development can provide access to a full range of resources and personnel that may not be as readily available if title arrangements are handled at the local or even state level for each project. Many of the large players in the title industry have addressed this niche by establishing national and/or regional title service offices in all regions of the country, some with internal working groups specifically focused on wind development. Although wind development is local and the role of the local title office usually is an important one, title underwriter and agent resources are available nationwide. Selection of an experienced, flexible, and responsive title company and office can help the developer avoid some of the common pitfalls, delays, and frustrations attendant to its title due diligence efforts. The specialized experience and greater resources available to one of these focused national or regional units can help shape and expedite the title review and curative process by providing input and addressing curative details and solutions with a view to a final title insurance product that will satisfy the title insurance requirements for the planned transactions. Typically such offices are better acquainted with and able to accommodate the lengthy process and staying power required to assemble and analyze parcels and identify proper landowner signatories, integrate survey work, and deal with title curative issues, lenders, and other issues relating to title on the scale of a typical wind farm. That said, strong local connections are also important. Unless the national office sends its own personnel or contracts for the local title search, the local title company agent for the larger national company will do the title search legwork at the county level.

Title policies are issued by or on behalf of title insurance underwriters. The underwriter is usually a large corporation doing business in many states and perhaps even in a number of countries. The specific entity doing business and issuing the actual title policies in a particular state or country may not be the parent company, but an entity specific to and authorized to issue insurance in that jurisdiction.

Title policies for wind energy projects are often written in amounts reaching into the hundreds of millions of dollars. All title companies are not equal when it comes to financial strength or regulatory or internally imposed limits on coverage that they may offer or underwrite without bringing in other title companies to share the risk under a title policy. For those interested in the details, there are numerous sources of information relating to the financial status and standing of a title company, including annual reports (showing the company’s shareholder surplus and claim reserves), ratings of the company by rating agencies, and the underwriter’s own internal limitations. Such information, or the requirements of the developer’s internal risk management team, lender(s), or investor(s), may also dictate which company(ies) may be engaged to underwrite the title risk (issue the proposed project title policy) and when reinsurance (requiring other insurers to participate in the policy risk) may be advisable or required.

Throughout the United States, underwriters issue title insurance policies either directly or through agents. Title agents are title companies authorized by title underwriters to issue their policies, although title agents do not provide the financial backing for the policies issued. Rather, local title agents search and examine the local land title records that are maintained in a public facility (usually located in the auditor’s, clerk’s, or recorder’s office for the applicable county) or, where available, as collected in a title plant (a replica of the county records assembled and maintained by one or more local agents).

It is important to know whether you are dealing directly with an underwriter or with a local agent, because the availability, pricing, and timing for the services and products are driven by the resources available to that company. For example, wind energy projects or transactions involving wind energy projects often span county and even state lines, and the ability of a local agent may be limited to providing a search and examination of only local records, whereas an underwriter may have the ability to engage multiple agents in two or more counties or in two or more states.

Moreover, local agents typically do not have the ability to issue title insurance policies without the authorization of an underwriter. It can make a difference depending on which underwriter or underwriters support a particular agent to anticipate what is or is not insurable based on that underwriter’s issuing guidelines or requirements and/or reinsurance limits. Further, if using a local agent to close a project transaction, one should consider obtaining a closing protection letter from the issuing title insurer where such is allowed under state law. The purpose of a closing protection letter is to document the responsibility of the insuring title company regarding escrow closings conducted by its agents, which typically have substantially less financial strength than the underwriting insurer. The typical closing protection letter provides the developer assurances from the issuer against loss by reason of acts by the agent contrary to the written closing instructions for the transaction relating to the status of title, the obtaining and recording of documents, and the collection and payment of funds. Some states disallow use of a closing protection letter, and the enforceability of such a letter is not clearly established in other states. However, where a closing protection letter is not expressly prohibited, it is still better to obtain one than not if closing is not handled directly by the underwriting insurer.

B. Pricing and Response Time. The size, numbers of parcels and owners, and values of projects in the wind industry present significant challenges to the title insurance industry. There are usually numerous properties involved in a wind energy project such that it can take significant time to search title and property ownership over sometimes hundreds of parcels. In addition, property ownership is dynamic and changing over time and must be monitored. Not all title underwriters and their agents are alike in their ability to price their services and products, do the actual legwork to complete the title searches and periodic updates, and deliver in an efficient and timely manner. It is not uncommon for a rural county (where most significant wind developments occur) to have only one agent or only a few agents. This can present timing and logistical challenges considering the pace and technical demands of one or more large commercial wind project transactions in that county, in addition to the agent’s other day to day work. This situation is aggravated in circumstances in which multiple large projects are overlapping or competing for the time and resources of the local title or escrow officer. In some cases, an underwriter may send its own people to examine the county records without going through the local agent to avoid delay related to overworked or uncooperative title examiners and bottlenecked title plants. Sometimes these delays are unavoidable, but, in any case, they can be real constraints on the timing of the review and managing of title issues, and often they are beyond the control of the issuing title company, developer, or anyone else.

Pricing of title services is not uniform across all providers and jurisdictions. To determine pricing, it is necessary to know whether the project is located in a state that uses promulgated, filed, or negotiable rate structures. These rate structures are controlled by state law, usually under the authority of that state’s insurance commissioner. A state with promulgated rates will not permit an underwriter or its agents to adjust rates unless formally approved by the state regulatory body. In a state with filed rates, the underwriter and its agents must set and follow regulated rates, but those rates can be subject to variation and interpretation. In a state without regulatory oversight or that allows more flexibility, the pricing is driven by the market. Being aware of the regulatory environment in each state and having good contacts with title companies are essential in navigating the issues encountered in insuring a wind energy project.

II. Negotiating Title Policy and Endorsement Premiums. As discussed previously, the title industry is not controlled by a single underwriter or group of agents. There are several large title underwriters and thousands of affiliated and independent agents. To ensure competitive pricing (in states where competitive pricing is available), developers may undertake a focused request for proposal (“RFP”) process to aid in evaluating and selecting written bids or proposals from available companies. Such a process is intended to give the developer more information to determine which company can provide the best price (when it is able to do so under the applicable state’s regulatory framework) and the most competitive and responsive service in a particular geographic area. Some title companies are more flexible and responsive in certain geographic areas and on certain underwriting issues than others. It is useful to consider a title company’s resources and pricing in the area where the project will be located. The title industry is extremely competitive, and thus it is important to establish a relationship with the title company that will provide the most cost and time effective service before any title work is ordered. That said, experienced developers typically have standing relationships with one or more national title companies, offices, and particular title underwriters with whom they regularly work. Reliability, responsiveness, experience, and creativity of the title company and underwriting staff are very important factors that also weigh in the balance in choosing a title company.

III. Reviewing the Preliminary Commitments and Reports.

A. Title Review. A typical wind energy project includes many parcels of land and often covers thousands of acres stretching over multiple counties or parishes. The title search and examination process produces many preliminary title “commitments” or preliminary title “reports.” Though sometimes used interchangeably in casual discussions, in most cases there are technical differences between a “title commitment” and a “title report.” A true commitment, like an insurance binder, once complete, provides the proposed insured with the contractual right to obtain the policy described in the commitment upon satisfaction of the commitment’s terms, conditions, and requirements. A true commitment is also enforceable in its own right respecting certain losses and costs incurred by the proposed insured, subject to the limits of liability and terms of the commitment. A title report, on the other hand, is typically just a report from the title company summarizing record title based on its review of the record documents with little or no insurance or risk sharing component.

Basic title review requires one to obtain and review those documents referenced in the title commitments and reports. Frequently, a survey is required to locate the documentary exceptions and to show how they relate to the planned project infrastructure and site. Legibility of some documents can be challenging, and sometimes one must seek alternative sources of documents. Where only a memorandum or short form of an agreement is recorded, one must obtain the full agreement that is memorialized in order to determine its impact on the property. An actual review of these documents is required to (1) determine the person or entity vested in title (in order to verify signatories to the wind lease or easement, or to create a curative document when needed), (2) determine whether the title is subject to liens or mortgages or other claims that may pose unacceptable risks to the wind project, and (3) discover and analyze defects or other encumbrances, such as easements for utilities, road rights of way, reservations of mineral or timber or other rights, covenants limiting the use of the land, or other interests held by persons or entities other than the landowner that are revealed in the commitment or report and that might interfere with or even prevent development, construction, and ongoing operation of the project as planned.

The developer should also obtain from the landowner and review copies of all known “off record” (that is, unrecorded) leases, contracts, and other agreements relating to the subject property, including those for which a memorandum or short form is recorded. Off record agreements are very common on wind sites, from farm leases to manure spreading agreements, hunting leases or entry rights, conservation reserve program contracts, and a full range of various other rights and interests that the developer must review, evaluate, and determine whether and how to address going forward.

It is best to obtain and thoroughly analyze the title information early in the process to make more certain, to the extent one can in such situations, that all identified record and off record interests affecting the site are discovered, disclosed, and analyzed. It is also important to get periodic title updates so that newly recorded matters affecting title can be identified, evaluated, and addressed in the due diligence process. Understanding the meaning and risks of the title information revealed by the commitments or reports and how it will impact a particular project can make the difference between successful execution of a plan and lingering problems or the inability to develop, construct, and operate the project as planned.

B. Determining Whether to Undertake Curative Measures. Once all of the information contained in the preliminary title commitments or reports and the available off record agreements and survey information has been reviewed, one must distinguish those title issues that must be corrected or cured from those that may be permitted to remain on the title, i.e., those that will not adversely impact the project or the ability to finance or sell the project. If a leasehold or an easement interest is obtained from someone claiming to own land, when in fact the title commitment or report indicates that all or part of the fee simple title is vested on the records in whole or in part in another person or persons, the title company will require correction of the title or execution of the lease or easement by all owners of record before a policy insuring the lease or easement can be issued without exception, for the interest of the other person(s).

One common example of where the vested fee owner and the proposed landlord are not the same person is where the landlord is a contract vendee purchasing the property under a land sale contract. In such a case, the contract seller would be the vested owner of record to the title to the underlying land. The developer should require the approval and written agreement of the vested fee owner/contract seller to honor and be bound by the lease or easement at issue to ensure that the developer’s land interest will survive any foreclosure or forfeiture of the contract by the purchaser. Most often mortgages (like the land sale contract situation described above) must be addressed in some manner that will permit the lender’s interest to coexist with and not threaten the project. The same is true for farm leases and other prior rights that can coexist with the wind farm. Prior easements or rights of way and other encumbrances burdening the project site can also be problematic. Some must be terminated or modified to allow construction and/or operation of the proposed project; others may not create a risk to the project at all. Depending on the nature of the encumbrance and its relationship to the project operations or facilities, a title company may require curative documentation to insure over (or remove) or insure as subordinate even encumbrances that are placed of record after the project site control agreement is recorded. This suggests that periodic date downs of title work will help the developer, title company, and surveyor keep better track of and address matters relating to the project site that may need to be addressed in connection with the issuance of a title policy.

In order to better evaluate title and survey issues and needed curatives, it is important to know where the project facilities will be located in relation to other facilities and interests. These include access and crane roads; collector, transmission, and other lines; topographic features (what appears flat on the map may be a cliff or a ravine); meteorological tower, turbine, and operation and maintenance facilities; substation sites; etc., as well as where existing improvements, setbacks, easements, wetlands, and protected bird, wildlife, and plant habitat occur on the project site. All area features and rights that may limit or prohibit use or development should be identified and located in a manner that allows the persons reviewing the title and survey to evaluate the various existing conditions and encumbrances and the proposed project layout to determine what curative measures need be taken.

Another important factor to evaluate during the title due diligence process is whether the easements serving the project site are sufficient for project development and operation. The oversized and specialized vehicles and equipment required to deliver and construct the wind project facilities require specialized access roads, sometimes even requiring alterations to the public roads serving the project site. Development may not be possible if the access road serving the project area is a twisting, 15 foot wide, private easement over adjacent lands owned by one or more third parties or the easement provides that it is limited to agricultural use or to certain times or seasons or other limited use. Unless the developer has alternative, viable access that meets project requirements the site would not be developable. Problems can relate to both the width of the easement (insufficient for the turning radii of large vehicles and cranes utilized during construction) and the scope of use (wind farm development, despite the “farm” label, is typically not considered an agricultural use). Likewise, an easement that is tied to (is appurtenant to) a particular parcel or parcels sought to be accessed and potentially developed cannot typically lawfully be used to access other parcels or areas, even if those other parcels or areas are adjacent to or accessible from the appurtenant (benefitted) parcels. Are there alternative access routes? Does the wind energy land agreement limit the developer’s access only to certain established or designated routes? Or does it allow the developer more flexibility in accessing the project site and facilities? Understanding how these interests affect and relate to the project is imperative to the successful development, construction, financing, and operation of a wind project.

IV. Survey Maps.

A. Uses. Surveys are a necessary part of the project site and title evaluation due diligence. The developer needs to know the property corners and boundaries, where existing residences and other improvements are located, and where encumbrances such as easements, setbacks, and other features are located. A developer must have accurate and complete information to site its wind facilities in a manner that can coexist with prior encumbrances or determine whether some curative measure needs to be taken. Topographic information usually is needed to determine areas that may have problem slopes or require special engineering solutions for project facilities. Lenders often have survey requirements, as do permitting authorities. Different types of surveys can provide a wide variation in usable information. An adequate survey will often reveal details that are crucial to efficient and secure project development and that are not otherwise obvious from a mere inspection of the surface of the land or review of related documentation. A well done survey is a useful and necessary tool in reviewing the title and performing due diligence of the site for encroachment, boundary, setback, project facility locations, access, and other issues. Title companies will usually require a survey map (typically an ALTA survey, discussed briefly below) before agreeing to issue certain kinds of title coverage, such as extended coverage owner’s and lender’s policies and certain endorsements that relate to survey matters.

Before ordering a survey map, it is important to know the intended use for the final product. It is also important to know whether the title company requires a survey for the particular form of title insurance coverage(s) needed for the project and what type of survey is required. More often than not, a wind energy project developer (and in virtually all cases, a project lender) will require an extended coverage owner’s policy of title insurance, which often dictates the need for a certain form of survey map, certified to the title company and to the wind developer.

B. Forms. Two common forms of survey maps produced by professional land surveyors are the ALTA/NSPS (American Land Title Association/National Society of Professional Surveyors) land survey and the boundary survey. An ALTA/NSPS survey is certified by the surveyor to meet certain minimum detail requirements established by ALTA in conjunction with NSPS. The ALTA/NSPS surveys are the gold standard for the respective industries and are the most useful in reviewing and evaluating the configuration and layout of a site, its physical features, the location of improvements and easements, and observable signs of third party use and other matters, depending on the scope of work called for from the surveyor. The ALTA/NSPS survey standards and the optional “Table A” items were last revised in 2016. Surveyors frequently use a vernacular all their own, and understanding their forms and practices is essential to purchasing the right product and services for a particular project.

A boundary survey usually is much less expensive and much quicker to perform, but is much less reliable, especially for an area of land that has not been platted and probably has not been surveyed since the federal government established patents and granted lands during the 19th century. The 2016 ALTA/NSPS standards require the ALTA survey to meet local “boundary survey” requirements where local law imposes stricter requirements than the basic ALTA/NSPS standards do.

Generally, unless the site is relatively small and simple and there are no easements or encumbrances of record affecting a site (or those that exist are easily locatable by reference to the property boundary), a boundary survey will not give one enough information to do a thorough and prudent title review and analysis, especially someone who has not been onsite and walked the entire property with a trained eye for detail, encroachments, and signs of third party use. Also, unless the survey of either type includes an overlay of the existing or proposed project site plan details (e.g., project improvements, utilities, setbacks, access and crane roads, turbine pad footprints, collection and transmission lines and fixtures, and other related improvements, substations/switchyards, operations and maintenance buildings, etc.), a reviewer may not be able to determine which existing easements or encumbrances (other than blanket encumbrances) or planned facility configurations or locations raise issues that may need to be addressed in the due diligence phase.

Is a survey needed? Must it be an ALTA/NSPS survey or a boundary survey? Does the developer have a detailed project site plan overlay for the survey? What optional “Table A” items offered under the ALTA/NSPS standards are required? To whom must the survey be certified? What are the developer’s responsibilities vis à vis getting the surveyor the access and documentation it requires to perform the survey? How will survey timing fit with the developer’s overall project planning, title review contingency period, and overall due diligence period? These are relevant and recurring questions that must be carefully considered.

C. Pricing. Survey pricing is not standardized and will depend in part on the scope of work required and the timing of the survey and complexity of the site. Surveyors, like many other vendors, are often willing to negotiate. They may provide discounts or other incentives to commercial customers for volume business, or to compete aggressively against other local businesses. On the other hand, a relatively inexpensive proposal may be illusory. Will the surveyor be able to complete the survey project as planned, on time, and in a comprehensive, accurate manner, acceptable to the developer, title company, and other parties involved? As with title insurance, past experience with the surveyor and an understanding of the surveyor’s experience, reliability, thoroughness, and other intangibles is a factor that can weigh heavily in the choice of a project surveyor and can offset or outweigh any apparent bargain price proposal from an unknown or untested party. Although no negotiations or contract will guarantee that everything comes in on budget and on time, it is extremely important to have these negotiations early on in the process, and in a manner that will promote reliable work from the surveyor and still help in the effort to keep the project on budget and on time.

V. Drafting Title Requirements into Wind Energy Agreements.

A. Reviewing Proposed Terms. Title requirements contained in a wind energy land agreement or a wind energy facility purchase and sale agreement can appear to be boilerplate. On the other hand, an experienced wind developer is aware of the sorts of difficulties that can arise and knows the importance of the terms and scope of agreements for title and survey services. There will be enough surprises even with proper planning and execution without adding to the mix by skipping, unnecessarily deferring, or ignoring important steps in project evaluation and development. Without proper planning, the developer may experience the unwelcome surprise of unanticipated title policy premiums or the unavailability of desired or required title coverages because they are unfamiliar with the pricing, underwriting requirements, or range of title insurance coverages or endorsements that may be available to address the particular issues raised by their project site conditions. Or the developer may experience the delays and frustrations and added cost relating to last minute gathering and analyzing of the requisite information and documentation, cure, and allocation of risks associated with title defects, liens, encumbrances, or other matters that were unknown to the developer at the onset, or that the landowner was not required to provide pursuant to the site agreement. Having a well written agreement does not guarantee that all of the terms and conditions called for in the agreement will be complied with as and when contemplated by the agreement. However, addressing the issues one can foresee early on helps later when one has to deal with the unanticipated or changing issues that almost certainly will arise during the review and due diligence process.

B. Negotiating Terms Effectively. As discussed above, the prudent developer will engage early and work with the title insurance underwriter to obtain advice and assurances concerning the title company’s resources and willingness to make commitments. The guesswork can be eliminated or reduced significantly by procuring a title company’s written confirmation as to what it will and will not do in a particular transaction. Where possible, these confirmations should be reflected in the title commitment, along with what it will take to satisfy any related conditions.

Who pays for the search and examination process? Who pays for the preliminary commitments? How much will the title company charge for its premium? Are there termination fees for any title report(s) or commitments if no policy is ultimately issued? Will endorsements be necessary? Will there be added or contingent charges?

Over the last decade, title companies have been taking new and harder looks at their underwriting criteria and risk appetite. Coverages and endorsements that may have been readily available and issued in the past may be less so or harder to get, even from companies with which one has had a continuing relationship. An example is the move by most major title companies to do away with creditors’ rights coverage, whether by issuance of a CRED DEL endorsement deleting the creditors’ rights exclusion in the 1992 or 2006 or other policy form, using a 1970 policy jacket that did not include that exclusion or issuing affirmative coverage under an ALTA 21 or similar creditors’ rights endorsement. Even a developer who has had a long term and mutually productive relationship with an insurer or insurers may find it useful to look for opportunities to engage other insurers if the usual insurer(s) changes underwriting policies, shrinks available coverages, or raises premiums for the same coverage(s) that are available, or available on better terms, from another acceptable title insurer.

Relatively recent changes to the ALTA title policy endorsements include changes to the relatively new ALTA 36 series of endorsements regarding electric energy projects. Changes to the ALTA endorsement forms have both expanded and contracted certain aspects of title coverage. The ALTA 36 series of endorsements provide electric energy project specific coverages for both lease and/or easement interests. These endorsements have been expanded from their original “wind” project scope to include a range of electric energy projects and related definitions and coverages. The ALTA 36 base leasehold and easement endorsements are to be used for energy projects in place of the corresponding ALTA 13 leasehold endorsements, which do not include the energy specific terms. The endorsements include an expanded title valuation section to make clear that the computation of loss or damage for a covered defect affecting one parcel (or fewer than all parcels) includes resulting loss or damage to the “integrated project.” Also, the basic ALTA title policy only insures against title risks for real property interests. Because typical wind facilities installed by a developer under a lease or easement are to be removed at or before the end of the lease/easement term (and thus could be determined to be personal property under applicable law, see In re Oak Creek Energy Farms, Ltd., 956 F.2d 1167 (9th Cir. 1992)), a number of the new coverages include coverage relating to “Severable Improvements.” The carve backs to some other common endorsements include express exclusion of costs of remediation resulting from environmental damage or contamination, and loss of some of the coverage historically offered by a “comprehensive” endorsement to an owner’s policy.

VI. Curing Title Defects.

A. Document Preparation. The curative process requires the selection, preparation, and completion of appropriate documents to address the particular title matters requiring curative action discovered during title and survey due diligence. The developer’s due diligence and development team should have a protocol and develop an overall plan to address title due diligence matters. What is required, whether from a prudent developer standard, by lenders or investors, project permits, or applicable law? What is desired but perhaps not absolutely required for the development of the project? Does the developer have viable work arounds that it can implement if necessary or if desired curatives are not available? The process of identifying, determining the proper curative approach, and seeking and obtaining title curatives that satisfy the developer, title company, lender(s), and other interested parties can be very time consuming. Because the lead time on project due diligence and development often spans years, the developer must also keep up to date on changing ownerships, encumbrances, and conditions throughout that period, which can add parties and complexity to the due diligence and title curative process.

For mortgages and prior leases, it is necessary to evaluate whether a subordination agreement is required, or if a nondisturbance and attornment agreement will suffice, and whether the prior lender or lessee will agree to provide such comfort to the wind developer. A common issue for farm lessees that are asked to subordinate or agree to honor a subsequent wind lease or easement is the extent to which the wind lease or easement will interfere with the farmer’s operations or damage the farmer’s crops or other facilities. These are matters that must be worked out on a case by case basis, depending on the nature of the underlying agreements affecting title to the project lands and the scope of project activities that affect the leased areas. The developer will want to ensure that the curative arrangements made with a tenant farmer, for instance, are consistent with the developer’s obligations to the landowner under its site control agreement. If possible, the developer will want to avoid having to double pay for the same damage or crop loss—once under the site control document to the landowner and again under a related subordination or nondisturbance agreement to the tenant farmer. For existing easements encumbering the project lands, the developer should evaluate whether a consent and crossing agreement is necessary, or if a modification of an existing easement, such as confining an otherwise blanket easement to a specific, limited location, will suffice (and be available). Sometimes a curative document may not be needed at all, depending on the intended locations of the wind project facilities and whether or not they “intersect” with existing easements. Although some developers rely on prepared or “pre printed” forms, customized agreements are often necessary to address a particular situation.

B. Negotiations with Third Parties. A utility, a lender, another landowner, or some other person or business holding an interest in the title to the property intended for use as part of the wind project may not be interested in helping to solve the wind developer’s title issues. How do you get their attention? How can solutions be proposed in a nonthreatening manner? Successful projects result from the ability to negotiate with people in an effective manner. Generally, a title underwriter likely will not provide title coverage over a particular title exception or encumbrance while apparent problems with that item remain outstanding. Frequently, problems can be solved with help from a knowledgeable title underwriting counsel. It is important for the developer to understand the issues raised by third party rights and how best to navigate them.

VII. Weathering the Title Insurance Underwriting Process. Often the person from whom the developer orders title work is a customer service or account manager, rather than the title underwriter. The title underwriter is the person with authority at the title company who assesses title risk, decides whether and under what circumstances to accept or insure over a title defect, issues an endorsement, approves a policy provision, or provides other insight or information in insuring title to a wind project. The route to a final policy is often drawn out and involved, and the motivation, ability, and authority of the title underwriter can vary greatly on any given transaction and from underwriter to underwriter. The developer should have a sense for (1) which title services and products are available and which to order, (2) how to evaluate critically the preliminary commitment or report and the exceptions and requirements it contains, (3) whether, when, and how to request revisions or amendments to the commitments or reports, (4) what endorsements are available and their cost, and (5) what underwriting criteria will be applied to each. These criteria can and do vary from site to site and from state to state and even from title company to title company.

If the developer’s land rights are in the form of options to lease or the developer is acquiring the optionee’s position in a project, one important factor in the availability and timing of obtaining title insurance is whether lease options are insurable under a title policy in the project state. In some jurisdictions, a stand alone option to lease must be exercised and the lease must be in effect before title insurance coverage is available. A developer may require, as a condition of closing the acquisition of project site control agreements that include options, that the options be exercised and the leases in place such that title insurance can be issued on the project site interests at the closing of the acquisition.

The better the development team understands and deals with these issues, the more assurance they have of a successful wind project and the prudent protection that such a policy can provide. The consequences of not understanding and effectively dealing with the title underwriting process can be devastating to the project. The problems that a developer may face in dealing with title and survey issues are exacerbated if the process of completing detailed title and survey review and analysis is delayed. The later one discovers a potential problem the less time there is to review, analyze, and pursue the most prudent, cost effective, and efficient curative options in the ordinary course.

For certain title issues, an indemnity or affidavit from one or more third parties might be sufficient, at least for title insurance underwriting purposes, to remove an exception from the policy or to allow the title company to insure the offending exception as subordinated to the developer’s (or lender’s) insured interest. If so, is an indemnity or affidavit advisable or even available? Even if the indemnity or affidavit satisfies the title company, does it actually cure the underlying issue that it seeks to address? Having an exception or defect removed from or insured over on a title policy does not ensure that the underlying problem is resolved or even affected by the proffered instrument, only that the insured policyholder has a potential claim against the title insurer if there is a loss that has been insured against under the policy, and then only up to the policy limits. Who must give the indemnity or affidavit? Are they willing (or can they be convinced) to do so? Is an endorsement available to cover the issue, and will an endorsement be acceptable? Must a more direct curative measure be undertaken that actually fixes the underlying problem (such as a quitclaim from a neighbor whose fence line encroaches onto the project site leased from the adjacent landowner, which would eliminate any adverse possession right that may have accrued)? What are the options and how will each play out in a particular scenario? If the developer accepts a risk on title, how will that fare if and when the developer seeks third party financing or investment or goes to sell the project?

VIII. Financing: Anticipating Lender Requirements. Institutional lenders, Wall Street investors, and private financing parties may each have different requirements for title insurance, survey maps, and other title matters. With the range of services, insurance products, and qualified title companies, the developer or borrower is not without options concerning these matters. Which title company to select; the terms for the search and examination, and, in some states, the premium; and the underwriting process are subject to considerable negotiation and variation. It is extremely helpful to have useful input or recent experience on lender or investor title requirements for the particular lender or investor, especially in the particular jurisdiction, and to be able to employ the title review and curative process in closing a financing transaction. Letting the lender or investor control the process, on the other hand, though sometimes unavoidable, can be more expensive and perhaps more difficult for the wind project owner or purchaser as the project owner or purchaser will pay for its lender’s (and maybe the investor’s) due diligence efforts as well as their own.

IX. The Acquisition Closing Process. Many questions arise during the closing process. The range of questions varies greatly from project to project and with the experience, policies, and sophistication of the parties. Some projects do not require an escrow closing, other projects need only a modified closing process, and some projects or parties require a table (in person) closing. Which is which, and when is one more appropriate than the other? The costs associated with a table closing can be significant, though they are most often seen in connection with corporate /entity level transactions and on real property transactions on the East Coast and other areas where “escrow” closings are not as common.

It is important for the parties to monitor and confirm that the process is on track to close as contemplated before the closing is scheduled. Is there enough lead time for the finalization, circulation, execution, and return of closing documents? Will the parties have adequate access to deliveries, emails, faxes, notary services, etc. to be responsive to the time pressures of a closing? If a party’s signatories are out of state or out of the country and that party is required to provide notarized originals of any documents required to complete the closing, is the form of notarization or authentication acceptable in the state where the closing is taking place and to the title company? Have all special, state or county specific recording requirements been addressed in the closing documents? Is distribution to remote county recorders or other filing offices required and accounted for? Which closing documents may be signed and submitted by fax or electronically, and which require originals in hand in escrow in order to close? How many original counterparts of each are required? Does the transaction involve any local, state, or federal filing, recording, or reporting requirements?

Again, there are usually last minute items or changes that require prompt attention and action in connection with every closing, so it is best to be organized and deal with the known factors early on to give one room and time to focus on those last minute items that may not be as foreseeable or avoidable. Because these transactions can be very fluid, important decisions may have to be made and last minute arrangements documented at the closing table or time of closing. Understanding the closing process, the title process, and how they interact can be invaluable. Many decisions require the developer, owner, or borrower to accept risks, take action, pay money, or make concessions. Knowing which risks can be avoided, what actions are appropriate, how to properly document any agreed upon arrangements, and how to most efficiently deal with the details of a closing are essential tools.

X. Maintaining Title Insurance Coverages over Time.

A. Corporate Reorganizations and Transfers of Interest. A title insurance policy provides indemnification for the insured developer in the event of a covered loss to the insured real property interest only so long as the insured interest remains in the hands of the insured developer, subject to carry over “warranty” coverage that can cover developer liability to a third party grantee for title defects that were insured against under the developer’s policy and that are implicated in a later warranty conveyance by the developer. When a corporate reorganization occurs, e.g., into a limited liability company or partnership, interests are adjusted or transferred, property is deeded or conveyed, or other interests are created, assigned, or released, the developer’s affirmative coverage under a very expensive title policy can be lost entirely, depending on the type of policy and nature of the change to the insured entity.

In certain circumstances, an insured developer can purchase endorsements to a pre 2006 ALTA policy that will allow the policy coverage to run to a successor, including one of the so called “Fairway” endorsements (where available) to continue coverage in a successor after any change in partners in a partnership or members in a limited liability company, and the “substitute insured” endorsement that covers, among other circumstances, transfers by deed, without monetary consideration, to an entity wholly owned by the named insured(s). The ALTA 2006 owner’s policy has a revised definition of the “insured” that would automatically continue (but not expand or change the effective date of) the policy coverage to the benefit of certain successors to the insured, similar to the substitute insured endorsement and the “Fairway” endorsement.

In many cases, it is possible to avoid loss of coverage that might otherwise be triggered in connection with certain corporate and entity changes or reorganizations by knowing when and how to work with a title insurer and its policy to purchase endorsements that will prevent termination and expressly continue coverage to the successor entity. Coverage may be extended or amended or other action may be taken with appropriate coordination with the insurer to avoid the unintended consequences of what otherwise should have been a simple corporate reorganization or restructuring of assets. Before any changes are made, however, one should review the actual policies; evaluate existing coverages and available, supplemental products; and determine whether simple and inexpensive options are available. The consequences of not doing so may be loss of the developer’s affirmative title coverage and the unintended risk of not having title coverage, or the cost of purchasing a new title policy at significantly greater expense.

B. Sufficient Liability Limits. When a wind energy project is developed, the interest in the project’s site control land, lease, or easement interests themselves may have a market value significantly lower than the all in value of the finished project. Further, over time, the value of this interest may increase, though not all value, assets, or risks would be insurable under a title insurance policy, even a newer energy project specific policy. Typically, the amount of title insurance needed is based on the cost to acquire the land and develop the project—the sum of all “hard” and “soft” costs. But will that amount be sufficient in five years? In 10 or more years? The value of the project may not be static. As noted above, many of the most valuable facilities under a wind easement or lease may be deemed personal property and not even insured under a basic title policy, regardless of the stated coverage amount. If the dollar value of the insurable assets increases, it may be advisable to increase the amount of title coverage, realizing that the date of the policy will remain the same and the policy has an exclusion for matters created, agreed to, or suffered by the insured, as mentioned below, so no interim title defects will be covered, only those that existed on the original effective date and would otherwise be covered by the policy. Sometimes upgrading the project title coverage can be accomplished by purchasing endorsements to an existing policy. Other times a new title policy may be necessary.

ALTA owner/lessee title policies that predated the 2006 ALTA policy form each contained a coinsurance clause (Section 7(b) Conditions and Stipulations) that reduced insurance coverage pro rata on any partial loss if the original policy underinsured (i.e., insured at less than 80 percent of the total value of the insured estate on the policy date) or if the insured premises were improved to more than 120 percent of the insured value after the policy date. These coinsurance provisions were not carried over into the 2006 ALTA policy form that is now the standard in most states. However, the coinsurance provisions still apply for policies issued under the old forms that contained the coinsurance language.

The point to keep in mind is that the title insurance covering the owner’s interest in the project real estate and related insurable interests should be evaluated regularly, and the risks associated with a partial or complete failure of title should not be ignored. Any insured, secured financing or refinancing of a project is an opportune time for a developer to consider purchasing a new title policy. At loan closing, the developer would purchase its own “upgraded” policy at full price, but be entitled to a much lower, often nominal, premium for a simultaneously issued lender’s policy for its lender, plus the cost of endorsements its lender requires. The developer’s new owner’s/lessee’s policy could take into account any appreciation in value of the insured project estate. While the new title policy would most likely not cover title exceptions or defects agreed to, caused by, or accepted by the insured developer, regardless of when they occurred, due to an exclusion from coverage on all policies, the new policy could provide for expanded coverage in other areas and take advantage of the improvements in the 2006 ALTA form (where available) over that of prior policy forms.

C. Subsequent Financings or Equity Participations. When a lender loans money to a project developer or purchaser secured by a mortgage or deed of trust lien in a wind energy project’s real estate interests, the lender customarily requires a mortgagee’s policy of title insurance to insure the priority and validity of its mortgage or trust deed lien on the developer’s/project owner’s interest in the project (leaseholds, easements, and facilities). The wind energy project owner/purchaser and borrower typically pay the premium for their lender’s policy, though who pays the premium for the buyer’s title policy in a project sale transaction is a matter for agreement by the parties and is sometimes influenced by local custom or practice. The liability insurance coverage for the lender’s title policy is the amount of the loan secured by the asset. It is important to understand that the lender’s title policy insures only the lender and its successors and assigns with respect to the insured loan, not the developer/borrower. The title coverage purchased for the lender will not provide any coverage to the developer/borrower in the event of a failure of or other defect in title. In fact, under typical loan documents and title documents and indemnifications and assurances required by the title company and lender from the developer/borrower in connection with the loan and issuance of the lender’s title policy, the developer/borrower may be liable to the lender and/or title company for title defects, either directly or through subrogation. This is true no matter how many times the project is financed, though the liability to the title company may be extinguished by the developer/borrower’s own policy. It is important for the developer to maintain its own adequate title coverage independent of the lender’s coverage. Further, it is valuable to remember that when a lender’s policy is required, the developer/borrower may upgrade its existing coverage simultaneously with the issuance of the new lender’s policy at significantly reduced marginal premiums for the entire package, as described above. It is much less expensive to insure the title twice at the same time (lender policy and developer policy) than it is to insure it once for the lender and then again later for the developer, or vice versa.

One often sees developers insure title to the bare, undeveloped leased project lands at a lower, bare land rate before development. Developers sometimes also just hold the commitments/reports open and do not obtain title insurance at all until development is ready to go, or even after actual development is occurring or finished if the developer funds construction out of its own pocket. The latter practice is much riskier for the developer because the developer will spend a lot of money investigating, planning, and permitting its project and ordering the various components and commencing or even completing work for the development, and will not have title coverage until the developer purchases the policy (subject to any binding commitment rights it may have). The developer initially insuring at the bare land valuation would typically order the full blown “built out value” policy coverage during the first round of financing (which is often when the real development work begins, but may be after project completion), when it can piggyback the coverages and save premium dollars.

XI. Conclusion. Much attention in energy transactions is paid to negotiating the power purchase or off take agreement(s), interconnection agreements, and the like, for obvious reasons. For developers and project owners that are not themselves end users of the electricity generated by the project, apart from tax or other incentives that may be available, this is how they will recover their investment in the project and seek to achieve economic success. However, production of the electricity requires the development and operation of the project facilities on the project lands. Effectively evaluating and ensuring secure real property interests and rights early on will provide more assurance of a successful project. The more experience the wind developer gains over time in dealing with title and survey issues, the more readily apparent it is that title to the project lands really does matter and can affect the bottom line enormously, and that even a single title issue can render a project “fatally flawed” if it affects a crucial element of the project and no economic work around is available. These matters can be made easier to understand and address with the guidance of an experienced professional who is knowledgeable in the title and survey industries and the help of a veteran wind project development team.
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