As mentioned in the previous article Shared Facilities:
Nowadays, it’s a common practice now for builders to build several condominium corporations on a larger piece of land to form a residential complex. These condominium corporations share among themselves certain facilities, such as garage parking, landscaping and snow removal, security and the gatehouse. By doing so, the condominium corporations can take advantage of sharing the costs of operating, maintaining and repairing these shared facilities.
The condominium corporations share these costs according to certain predefined formula based on (usually) the proportion of the number of units in each corporation to the total number of units in all corporations.
In most situations, utilities (electricity, gas, water) supplied to these shared facilities are not separately metered. Instead they are supplied by one or more corporations. The costs will be a predetermined estimated percentage of the total utility bill of the supplying condominium corporation, and the costs will then be shared among the corporations according to the predefined formula mentioned above.
For illustration purposes, we'll use simple and round numbers:
Assuming there are three condominium corporations in a residential complex, each sharing an equal amount (i.e. 1/3) of the total costs of shared facilities expenditures.
Let's assume that condo A supplies all the electricity to the shared facilities, and the predetermined estimated percentage is 30% of Condo A's total electricity consumption. If condo A's hydro bill is $100,000, then $30,000 will be attributed to the shared facilities. The three condos will share equally, $10,000 each. Condo B and condo C each will have to pay back $10,000 to condo A. Condo A's net cost of electricity is $80,000.
Let's say a supplier is selling a certain system that can save one-third of the energy (electricity) costs of the shared facilities, and the cost of implementing the system is $36,000. The payback period will be 3.6 years; i.e., after about three years and seven months (3.6 years), the costs of implementing the system will be fully recouped.
Each condo will have to contribute $12,000 to the cost of implementing this energy saving system, and expect to save $3,333.33 (one-third of the total savings of $10,000) each.
For illustration purposes, let's assume that
• The electricity consumption of the shared facilities is exactly 30% of the total electricity consumption of the condo A.
• The new system can actually deliver savings of one-third of the electricity used by shared facilities, as per supplier's claim.
After the first year, condo A's electricity bill (assuming other things unchanged) will decrease from $100,000 to $90,000 due to the $10,000 saved from the newly implemented energy saving system.
However, this is where the pitfall comes into play:
Since the predetermined estimated percentage still remains at 30%, so $27,000 (30% of $90,000) will be the electricity costs of the shared facilities. Condo A and condo B will each have to reimburse $9,000 to condo A, so their savings are only $1,000 each.
For condo A, its net cost of electricity is $72,000 (hydro bill of $90,000 less $9,000 from condo B, and less $9,000 from condo C). To condo A, the saving is $8,000.
The real payback period fro condo B and condo C is actually 12 years (their share of the system cost of $12,000 divided by $1,000 actual savings), whereas the real payback period for condo A is a mere 1.5 years (its share of the system cost of $12,000 divided by its actual savings of $8,000). Simply put, condo B and condo C are subsidizing condo A's hydro bill.
From these illustrations, it is easy to see who reaps the most benefit.
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