microFIT for Ontario Lawyers 101 Guide
An Introduction to microFIT Contracts
This webpage is not designed to, and likely does not contain all the information about microFIT facilities that may be needed in connection with a property purchase and sale transaction. We recommend that lawyers refer, as needed, to relevant materials and consult with technical or other advisors as may be necessary to understand the implications of a microFIT facility being located upon a property which is the subject of a real estate transaction. Further, this webpage is not intended to and shall not be construed as providing legal, technical or business advice, and IESO disclaims any and all liability for any costs, losses, claims or expenses that a lawyer or his or her clients (or any other visitor to this webpage) may suffer or incur as a result of relying on the information set out herein. By continuing to access this webpage, you agree to be bound by the foregoing disclaimer of liability.
1. What is the microFIT Program?
The microFIT Program supports the development of small or “micro” renewable electricity generation projects (≤10 kilowatts (kW)), such as solar panel installations.
Today, over 30,000 microFIT contract holders connect their microFIT facilities to a local utility (known as a local distribution company) to inject electricity generated by their microFIT facility into Ontario’s electricity grid in return for which they receive a guaranteed price per kilowatt-hour injected over a 20-year term for solar projects.
2. What is the role of the IESO in administering the program?
The Independent Electricity System Operator (IESO) is responsible for ensuring the reliability of the province’s electricity grid, administering Ontario’s electricity markets and leading long-term electricity supply planning, procurement and energy-efficiency efforts – all to provide businesses, communities and consumers with the power they count on to meet their needs.
The Ontario Power Authority (OPA) was responsible for implementing the microFIT program when it began in 2009. However, the OPA was merged with the IESO in 2015, and the IESO has been responsible for administering the microFIT Program ever since*.
As part of this role, the IESO:
Oversees contract–holder compliance with the terms of their microFIT contract;
Assesses contract assignment requests to ensure they meet any applicable eligibility criteria; and
Manages all existing microFIT contracts for the duration of the agreements.
The IESO does not:
Charge a fee to assess or process a request to assign a microFIT contract;
Pre-approve microFIT assignments or contractual amendments;
Solicit door-to-door for its programs, and does not authorize third parties to issue approvals or act on its behalf;
Endorse third parties offering services in relation to microFIT projects; or
Participate in or know about commercial arrangements between microFIT participants and third parties.
*This is the reason that contract versions 1 and 2 may refer to the OPA rather than the IESO.
3. What do the version numbers on microFIT contracts mean and why do they matter?
From its launch in 2009, until its closure to new applications on December 31, 2017, the microFIT Program included 17 different versions of the microFIT contract in three subsets:
Versions 1.3 and 1.4
Versions 1.5 and 1.6
Versions 2.x, 3.x and 4.x
Knowing the version of the microFIT contract will help you understand the respective rights and obligations of the contract holder and the IESO. For the purposes of this Guide, the most significant difference between the versions is between versions 1.3 and 1.4, which do not have an eligible participant schedule, and all other versions (v.1.5 and higher), which do have an eligible participant schedule.
At a glance: when a property with a microFIT facility on it is bought, sold or transferred, it is often necessary for the contract for the electricity from that facility to also be transferred by way of an assignment of the contract. microFIT contracts are not automatically assigned when a property is sold but must instead be assigned through the IESO-administered microFIT contract assignment process. If the contract holder’s version of the contract includes an eligible participant schedule (version 1.5 and higher) and the contract is not assigned at the time the property is sold, the contract holder will be in breach of the contract, and the contract may be terminated.
By contrast, for versions 1.3 and 1.4 of the microFIT contract, which do not contain an eligible participant schedule, there is no requirement for the contract-holder to be the same as the owner of the property. And regardless of who the contract-holder is (i.e. whether it is the current property owner or a third party), for these versions of the contract, the contract-holder may not intend to assign the microFIT contract to the purchaser upon a change of ownership of the property, or at any other time during its term. Thus, where a v. 1.3 or 1.4 contract is in place, it is important for the potential purchaser to find out (i) who the microFIT contract-holder is; and (ii) the terms under which the microFIT facility is located on the property. If it is important to the purchaser, the purchaser may also wish to find out whether the contract-holder intends to or is willing to assign the contract to the purchaser, and if so under what terms. Once these answers are known, the purchaser can determine if any steps that are specific to that property will be required vis-à-vis the microFIT facility.
What is a microFIT contract assignment?
A contract assignment is the transfer of a microFIT contract – and the associated rights and obligations – from a current contract holder(s) to a different individual or entity (the new contract-holder). As with all contract-related activity and transactions, contract assignments are managed through a contract holders’ “My microFIT Home Page” at https://mymicrofit.powerauthority.on.ca/login.php
When is a contract assigned?
For versions 1.5 and higher of the microFIT contract, which do include an eligible participant schedule, the contract must be assigned when:
Ownership of the property where a microFIT facility is located changes to another individual(s) or legal entity;
An individual or other legal entity is added to or removed from title to the property on which the microFIT facility is located; or
The current contract-holder is no longer an eligible participant (e.g. as a result of death), requiring the contract to be assigned to another eligible participant (individual or entity).
How is a microFIT contract assigned?
The current contract holder and prospective contract holder must follow the IESO’s automated contract assignment process through their respective My microFIT Home Page. If an eligible participant schedule is applicable (i.e. contract v.1.5 or higher), the prospective contract holder must meet the criteria listed in that schedule before the IESO can approve the request.
To learn more, view our contract assignment videos and read the instructions for the applicable contract version: http://www.ieso.ca/en/Get-Involved/microfit/FAQs-and-Instructional-Videos
In order to complete the assignment, both the assignor (current contract holder) and the assignee (future contract-holder) need to be directly involved in the process. While third parties can assist contract holders, only the assignor and assignee can make the personal representations, consents and declarations required at the time of the assignment.
At a glance: If you’ve been retained to act on behalf of a buyer or seller of a property with a microFIT facility, you need to understand the implications of the existing contract on the purchase or sale before you can fully advise your client. Please note: The information contained in this list of questions and answers is not comprehensive. Check with relevant organizations, or technical or other consultants, if more extensive information is needed.
1. Is the solar photovoltaic (PV) generating facility subject to a microFIT contract?
Solar PV facilities may be constructed without an IESO microFIT contract so it is necessary to check whether there is a microFIT contract for the facility. If there is no microFIT contract, much of the information on this site will be inapplicable, but you will likely still want to discuss any details regarding the facility with the property owner.
2. Does the property owner have an agreement with a third party regarding the microFIT facility?
In cases where the property owner is the contract holder and has entered into a design, construction, financing, maintenance or other type of third-party agreement, the terms of this third-party agreement should be discussed with the property owner early on in order to ensure its implications for a property sale transaction are fully understood (e.g. Who owns the equipment? Is there a lien on the property related to the facility? Who is responsible for maintaining the facility? Is the third party entitled to receive ongoing compensation of any kind? Would a buyer of the property be free to dismantle the facility and terminate the microFIT contract, or would this be a breach of a third party agreement?).
If you have the opportunity, you should ask about and help your client understand the implications of a microFIT facility on the property before any agreement is entered. This is especially important in instances where the buyer of the property may become responsible for the obligations of the current property owner to a third party.
Please note: The IESO is not associated or affiliated with any contractor, vendor, installer, financing entity or other third-party service provider; any such agreements or arrangements are strictly between the property owner and the third party and outside the knowledge or responsibility of the IESO. The IESO is not able to answer questions about or otherwise assist contract holders or others with third-party programs, contracts or other arrangements.
3. Is there a lien on the property relating to the microFIT facility?
The existence of third-party agreements of any kind in relation to the facility – including the types of agreements mentioned in Q.2 above, but also including a microFIT contract whose holder is not the owner of the property (as permitted under v.1.3 and 1.4 contracts) – may result in a lien registered against the property. Since a lien may directly affect any prospective real estate transaction, you and your clients should take this into consideration during your discussions of the sale or purchase.
4. Can a seller terminate a microFIT contract prior to the sale of the property?
(a) If the seller is IESO’s counterparty under the microFIT contract for the facility, the seller may terminate the microFIT contract by submitting a Notice of Termination Form to the IESO.
Please note: A microFIT contract should not be terminated without careful consideration because of the potentially significant implications of doing so, including, for example, the impact of termination on:
Agreements with third parties (e.g. termination of the contract may put the seller in breach of an agreement with a third party)
Any purchase and sale agreement for the property that may have already been entered, but for which the sale has not yet closed (e.g. the buyer of the property may be expecting to keep the microFIT facility operating and receive the generation payments for the remainder of the term of the contract).
(b) If the seller is not the IESO’s counterparty under the microFIT contract (which can be the case for v.1.3 and 1.4 contracts), then the seller will not have the direct legal right to terminate the microFIT contract. In these cases, the seller’s agreement with the third party contract-holder will determine under what terms (if any) the seller could arrange for the termination of the microFIT contract, including the amount of any payments that might have to be made to the third party contract holder in exchange for agreeing to the termination.
5. Are all buyers of properties with a microFIT facility entitled to become contract-holders?
a) Version 1.3 and 1.4 contracts do not contain eligibility requirements regarding property ownership, so these contract versions may be assigned to any legal person, including entities that are not natural persons (e.g. a corporation).
(b) For version 1.5, 1.6, 2.x, 3.x and 4.x contracts, a contract holder can only assign the contract to another “eligible participant”, which in all cases must be the owner of the property and is subject to further restrictions as to the types of entities that are eligible, as set out in the applicable eligible participant schedule.
6. What effect does assigning a microFIT contract have on the generation payments?
Generation payments will continue to be made for the full term of the contract unless it is terminated earlier for any reason. Once the contract is assigned, generation payments will be made to the new contract holder (assignee).
7. Is it possible to relocate a microFIT facility to a new property?
A microFIT facility may not be relocated to a new property under any circumstances.
8. Who else does the buyer of a property need to notify in connection with becoming the contract holder?
If the contract is assigned to the buyer of the property, it will be necessary for the buyer to notify the local distribution company (LDC) of changes to the microFIT contract. The LDC is responsible for paying the contract holder (on behalf of the IESO) for the electricity supplied to the grid, and helping the buyer in opening a new generation account with them.
9. What happens if a microFIT contract is not assigned to the buyer when a property is sold?
Where the eligible participant schedule applies (≥ v. 1.5), if the microFIT contract is not assigned to the buyer following the sale of the property, the contract holder will be in breach of his or her obligations under the contract. If following the provision of a notice of breach by the IESO, the contract is not assigned to the buyer within the time allowed, the IESO may terminate the microFIT contract.
For versions 1.3 and 1.4, where the eligible participant schedule does not apply, it will be necessary for the buyer to determine specifically for its own property and on an individual basis what the implications may be if the microFIT contract is not assigned to the buyer.
10. Where can I find the microFIT contract documents and other program documents?
All standard offer microFIT contracts and other relevant documents can be found on our Program Documents webpage: http://www.ieso.ca/get-involved/microfit/program-documents
11. What is the contract price for the microFIT contract?
All microFIT contracts are standard offer, meaning that a given version contains exactly the same general terms and conditions, including the contract price, which is used to calculate the amount payable for electricity generated and supplied to the grid for the term of the contract.
12. How much time is left in the term of the contract?
All microFIT contracts have a 20-year term for facilities generating electricity by solar PV technology. Once a property buyer knows the “contract commencement date,” he or she can determine how many years remain in the term of the microFIT contract.
13. How much electricity does the microFIT facility generate and what are the generation payments?
The size, type, location, and equipment used for a microFIT facility all affect how much electricity it will generate which, in turn, determines the generation payments paid to the contract holder. Current contract holders can consult their generation account statements or the local distribution company to confirm the amount of electricity generated and the value of generation payments, and to locate other historical generation information that may be helpful when listing the property.
Note – for properties where there is a version 1.3 or 1.4 contract in place, and the contract holder is a third party, only the third party contract holder will have this information and it may or may not be willing/required to provide it.
14. What costs associated with microFIT facilities should be taken into account when buying a property?
It is important to ask questions to understand the microFIT facility and how it currently operates. For example: Is there a maintenance schedule and what maintenance payments are required (if any)? What happens if I need to remove the microFIT facility temporarily to repair or replace the roof underneath it, and who pays the cost for its temporary removal? Will my insurance premiums be affected by the presence of a facility on the property? Is there a list of contacts in case there is an issue with the facility (i.e. roofer, electrician)? Are there any tax implications to receiving generation payments for electricity supplied to the grid (i.e. income tax or HST)? And for v.1.3 and 1.4 contracts, where a third party is the contract holder, any cost implications under the arrangements between the property owner and the third party should be determined.
15. As a Lawyer acting for a buyer, how else can I assist my client?
In addition to providing information of the type set out on this webpage, if you become directly involved in the negotiations, and e.g. the seller agrees to assist the buyer in becoming the new contract holder using the assignment process, it may be advisable for the parties to formalize this and any other understandings regarding the microFIT facility in writing by including it as a requirement under the agreement of purchase and sale. You can also play an important role by ensuring buyers who will become assignees understand the contract assignment process, including where to find information about making the assignment.
The following are a few questions that you may wish to consider asking initially if your client is considering purchasing a property with a solar facility on it. These questions do not constitute an exhaustive checklist, but are instead intended only to help start a conversation with the goal of understanding the various implications of the facility being on the property.
- Does the property owner have an agreement with a third party regarding the microFIT facility?
- What version is the microFIT contract?
- What is the Contract Price for the microFIT contract?
- What is the Contract Commencement Date?
- Is my client entitled to become a microFIT Contract Holder?
- Are there interests or liens that have been placed on the title?
- Is the assignment of the microFIT Contract stipulated in the agreement of purchase and sale?
- Is there a timeline outlined in the agreement of purchase and sale for the assignment of the microFIT contract?
Does the agreement of purchase and sale address generation payments made to the seller during the assignment process?