In Canada, the environment has suddenly emerged as the most important issue facing the country, according to a poll recently conducted for The Globe and Mail and CTV.  The environment was cited as the top issue by 26 percent of respondents in polling conducted in January 2008 replacing the perennial favorite, health care, now the No. 2 issue at 18 percent. Clearly, Canadians are ready to embrace behavior change for the benefit of our environment.

To do our part, many of us are exploring ways to use less energy, conserve water and reduce waste. Fewer emissions mean protecting our climate and having cleaner air and healthier communities for all Canadians. This article identifies opportunities to create energy savings in Ontario condominiums, and discusses grants and loans as viable ways to pay for them.

Growing concerns about the environment, rising energy prices worldwide, and a commitment by Ontario policy makers to pursue a "soft energy path" are all contributing to an increasing interest by homeowners in energy retrofits. To close an imminent supply-demand gap, Ontario is continuing its commitment to a "conservation culture" by promoting demand reduction as a complement to new generation capacity. What does this mean to condo owners? It means higher energy costs are inevitable and that incentives will likely remain available to encourage efficiency and conservation.

As a result of the new Condominium Act, most Ontario condominiums have a recently completed reserve fund study and have a funding plan in place. Many condos have struggled to make the funds meet the plan, resulting in increased fees and special assessments. Finding additional money to implement new environmental retrofits is a challenge for many, because condo budgets are full and owners are tapped out.

Undertaking environmental retrofits that save energy are likely the easiest to sell to the condo board because in many cases, they can be justified on economic grounds. Government grants coupled with a well-structured loan will provide a viable solution for many condominiums.

In most condominium buildings, engineers or energy management firms can identify measures that can be taken to create energy efficiencies. In many cases, the energy savings created outweigh the costs. Simple payback periods of two to ten years are common. As energy prices soar, the arguments for undertaking these initiatives become ever more compelling. Higher efficiency boilers, efficient lighting, and building automation systems are frequently recommended. Also, building envelopes can be improved to reduce heat loss with measures including improvements to windows, air sealing and insulation.

The cost of these measures can be reduced by financial assistance programs available from federal, provincial and municipal levels of government. The specific incentives are evolving as elected officials change their priorities to reflect the rapidly changing public sentiment. A list of current incentives is provided at the end of this article.

In addition to what may be received from financial assistance programs, many condos will face up-front costs to implement recommended improvements. These costs are typically in the range of $200,000 to $800,000 for a high-rise condo complex. Often, to avoid depleting the reserve fund or creating a one­time special assessment to unit owners, it makes sense to finance energy efficiency measures with a loan.

If the condo board is seeking a loan for environmental retrofit reasons and the condominium is compliant with the Act, then securing the loan should be relatively straightforward. The lender will likely ask for full disclosure of the condo's state of affairs. This will include information contained in a Status Certificate, audited financial statements and a copy of the reserve fund study. The lender may also want comfort that processes are and will remain in place to collect any common expense contributions that are in default. To enter a loan, the corporation must have a borrowing by-law in place, authorizing it to do so. Working with a lender who is able to provide their standard documentation specific to condos that are subject to Ontario's Condominium Act will likely be most straightforward and cost effective. This documentation typically includes a loan agreement, a note detailing terms of repayment and a general security agreement. It is prudent to have your lawyer review the lender's proposed documentation to ensure it is consistent with your understanding of the agreed deal terms.

The contractor will often require that milestone payments be made during the construction project based upon percentage of completion and subject to a holdback following substantial completion consistent with the Construction Lien Act. For larger or more complex projects it is prudent to use a Canadian Construction Documents Committee (CCDC) contract. CCDC contracts stipulate that a Consultant who oversees the project approves each payment. This provides an extra level of control to ensure that funds are advanced only after equipment is delivered and work is performed. A "progress payment" loan that advances funds as and when required and pays interest only is appropriate during the construction project.

Once the project is complete, a fixed-rate loan will commence. With a fixed-rate loan, rates will not change during the term, irrespective of what happens to market interest rates. Loan amortization periods are set in consideration of both the lifespan of the improvements and the anticipated energy savings they will create. Long-term assets warrant long-term loans to eliminate future interest rate movement risk and allocate costs over the timeframe they are enjoyed. The loan may often be structured to be cash flow neutral or cash flow positive. This means that the monthly loan payment is structured to be equal to or less than anticipated energy savings. In addition, once the loan is paid off, energy savings continue.

It's not just alarm about climate change that has to drive energy efficiency initiatives in condos. A well thought out environmental retrofit plan will be embraced by green and frugal owners alike!

Graham Banks is Vice President of Maxium Financial Services Inc. He is a Chartered Financial Analyst (CFA) and has 20 years' experience in structured, asset-based financing. Maxium Condo Finance Group delivers common element financing solutions to condominiums.