Financing a Sustainable Tomorrow

How the commercial property assessed clean energy program may benefit your business

BY BRENT C. SHAFFER

COMMERCIAL PROPERTY ASSESSED clean energy financing (C-PACE, often referred to in Delaware as D-PACE) is long-term financing for the installation of qualifying energy improvements to commercial real estate, secured by special assessments levied on the real estate itself. D-PACE allows financing for energy improvements for up to 25 years—longer than the terms of commercial mortgage loans and the typical duration a commercial property is owned.

In 2018, Delaware joined other states in passing legislation for D-PACE. The statute, based on Connecticut’s C-PACE program, is captioned “Delaware Voluntary Clean Energy Financing Program Based on Property Assessments (D-PACE) or Other Local Assessments” and is found in Delaware Code Title 29, Section 8061, part of the Delaware Energy Act. The parties involved in D-PACE include the program administrator, a local taxing authority, a lender providing the financing, and the borrower. Delaware Sustainable Energy Utility, doing business as Energize Delaware—a quasi-governmental nonprofit corporation established by Delaware statute— administers D-PACE statewide and reviews applications to determine whether the energy improvements qualify for the program.

The taxing authorities in Delaware are New Castle, Kent, and Sussex counties, and each has entered into a separate participation agreement with Energize Delaware, outlining how D-PACE is administered in its jurisdiction. Several private capital providers have funded D-PACE loans.

Eligible borrowers are those who own commercial property, excluding residential dwellings with fewer than five units. Qualifying energy improvements include equipment used in new construction or building renovations, clean energy systems, and qualifying waste heat recovery technologies.

The benefit assessments that secure D-PACE loans are levied by the county in the nature of tax assessments and appear on yearly tax bills. If the capital provider’s loan is not repaid, the provider can seek to collect on its benefit assessment lien. The lien generally holds the same "super" priority as other tax assessments. Because of this, two groups opposed the implementation of D-PACE.

Real estate lenders were concerned about the assessments taking priority over their mortgages. D-PACE financing cannot be placed on any property without the consent of current mortgage holders. Initially, mortgage lenders were hesitant to grant consent, but several provisions in D-PACE significantly protect them.

First, these benefit assessment liens cannot be accelerated. If an assessment is unpaid, the capital provider can only collect past-due assessments, not the entire loan balance. This mirrors tax sales, where the taxing municipality cannot add future taxes to the sale amount.

Second, instrumental to the passage of the D-PACE legislation in Delaware, any sale to collect delinquent benefit assessments does not extinguish mortgage liens. Therefore, mortgage lenders should not view a D-PACE property as equivalent to lending on a property with a prior mortgage lien.

County tax assessment offices also had concerns. They worried that benefit assessments would interfere with tax monition sales for delinquent taxes and that Delaware’s tax sale statutes would not support the collection of benefit assessments. These concerns were addressed through several 2021 amendments to the D-PACE statute, which ensured that property tax liens are paid first from tax sale proceeds before benefit assessment liens. The amendments also required D-PACE lenders to foreclose benefit assessment liens using legal attachment methods other than the standard monition sale.

Eventually, all three counties adopted the program: New Castle County signed a participation agreement on Sept. 10, 2019; Kent County on Jan. 13, 2021; and Sussex County on Feb. 2, 2021. The first D-PACE closing took place in February 2020, financing energy improvements to the historic DuPont Building in Wilmington.

D-PACE has become a more relevant source of capital for Delaware businesses in 2025 because mortgage lenders are now more likely to consent to D-PACE loans, understanding that properties with D-PACE function similarly to those with “extra” taxes (like properties in special improvement districts).

Businesses that own or develop commercial property in Delaware can use D-PACE to finance up to 100% of energy-saving improvements, benefiting from extended repayment terms, favorable capital provider interest rates, and the ability to sell without repaying the loan. n

Brent C. Shaffer is a partner at Young Conaway Stargatt & Taylor, LLP.