What should a REALTOR® know about the Clean Energy Improvement Program (CEIP)?

Fads come and go. Think Pogs, Beanie Babies, and Crystal Pepsi. Fun at the time, but few of us ever thought they were going to go the distance… apologies if you still have a box of Beanie Babies in your basement labelled “retirement”. I think it is safe to say that, like the internet and online shopping, the drive to decrease energy consumption in our energy-dense lives is not a fad, and this is no different in the real estate sector. Enter the Clean Energy Improvement program, which helps property owners increase efficiency and provides a low-cost lending environment to do so; however, REALTORS® need to know key details about the program to ensure smooth transactions.

What does CEIP offer property owners? 

The program is open to residential, commercial, and rural properties and provides competitive long-term loans to property owners for the express purpose of improving energy efficiency and installing renewable energy upgrades. The loans are provided through a participating municipality in Alberta where the property is located which, at the time of this writing, includes over two dozen municipalities, so the program has progressed significantly in recent years. Loans are capped at $50k for residential, $1M for non-residential, and $300k for farmland, and repayment terms can be as long as 25 years, with the option to repay the balance at any time without penalty.

How are the loans repaid? 

Here is the sticky bit in my opinion. Because the programs are administered directly by the municipality, the municipality has only one mechanism for loan repayment: the collection of property taxes. The resulting loan through the CEIP basically acts like a local improvement charge assessed to a neighbourhood, except it is not an improvement to a neighbourhood, but only to a single property at the choice and discretion of the property owner at the time. The loan will be reported on the owner's tax bill, but otherwise largely remains blind to the rest of the world, in common practice. The payments on the loan will be added to the annual property taxes and paid to the municipality that way until the full balance is cleared.

The Worrisome Scenario 

A REALTOR® is showing properties to a prospective client in a mature family neighbourhood close to desirable schools and amenities. Of the available properties, one stands out as a clear winner, especially with the upgraded heat pump, solar panels, fresh attic insulation, all-new LED light fixtures, and a high-efficiency hot water heating system. Compared to its competitors, it is the only one with these energy upgrades, and although the seller is asking a higher price than the others, the buyers feel it is a worthwhile investment to pay a little more for the upgraded home. The parties reach an agreement and move to closing, only to discover at the lawyer's office that there is a $47,000 loan against the property taxes for the energy upgrades, for which the buyer believes they already paid a premium during negotiations.

The core issue 

In my estimation, the breakdown in this realistic, albeit fictional scenario, happened at the point of listing. The seller’s brokerage would’ve pulled the title to check for encumbrances to the property, but the loan is not registered on the land title; it's registered on the taxes. The one exception is the very forward-thinking Town of Rocky Mountain House, which deserves a special shout-out! Despite the brokerage seeing the tax information populated in the MLS® System through municipal tax records, the CEIP loan information is not accessible by any commercially efficient method for buyers or REALTORS®, and is known only to the municipality and the property owner.

Mitigation efforts 

The CEIP is a program enabled by a regulation of the Municipal Government Act, and that regulation requires the agreement between the property owner and the municipality contain certain provisions. Of those provisions, the seller must disclose the existence of the loan to their REALTOR® and any prospective buyer, and include the agreement as a schedule or addendum to the purchase contract. This is good thinking, except sellers may genuinely forget about the program or may never have read the agreement to know they are expected to disclose the loan. Now, let’s suppose the seller does disclose the loan, at the very least. In that case, the buyer can choose to accept the loan as a consideration when negotiating the purchase price, or the seller can pay out the remaining balance through disbursements without penalty. Failing that, it becomes legal fodder for a big, long, expensive fight.

If you made it this far in the article, I hope you have a better idea of the potential benefits and issues related to this program. As a REALTOR®, the best plan is to ask the seller the question and then take the appropriate action to disclose whether a loan is in place. This is especially true in situations where the property obviously underwent energy-efficient upgrades in the past few years, since it would be a fair assumption that the owner probably used some program(s) to help in the cost of upgrades, perhaps including the CEIP. If you fail to take notice or to exercise basic due diligence by asking the appropriate questions, it could prove to be an extraordinary problem at the closing table.