What is Developer Surety?
Developer surety as you would expect includes surety bond products which are exclusively used by developers mainly for residential projects but also for commercial projects. Developer Surety bonds satisfy provincial legislation by providing warranty and deposit protection to home buyers as well as providing financial security for various obligations as they move through a project life cycle. The surety bond products available to developers include:
- Tarion Bonds
- Excess Condominium Deposit Insurance (ECDI)
- Condominium Deposit Insurance (CDI)
- Purchaser’s Deposit Bond
- Subdivision Bonds
Four Things You Should Know About Developer Surety
1. The Developer Surety Market is Booming
The developer Surety market isn’t showing any sign of slowing down. The demand for condominiums in the GTA remains strong and is outpacing the market for single-family homes.
2. Developer Surety Bonds free up cash
A developer surety bond removes the need for the developer to file a letter of credit when security is required for things like Tarion and subdivision improvements. This frees up much needed cash for this project and the next one.
3. Greater Credit Availability
By using a bond instead of a letter of credit, the developer gains access to additional bank financing that can be used to grow the company’s business and improve its liquidity.
To obtain a bond, a developer must demonstrate not only the financial means to complete the development project, but also the expertise, resources and operational controls to bring it to a successful conclusion. This is a strong marketing tool which will set you apart from your competition.
How do I apply for a developer surety bond?
The application process involves submitting financial information such as corporate financial statements, bank financing terms and conditions and project budgets. You will also need project marketing material, engineer’s reports and builder information. Although this seems like a big list, most if not all of these documents are required by your bank, cost consultant and Tarion Home Warranty Corporation. The good news is that you will likely have all of this information available when the time comes to apply for bonding.
When should I apply for a developer surety bond?
It’s never too early to discuss your bonding needs for an upcoming project. In a condominium project, bonding goes hand in hand with bank financing and Tarion registration at the front end of the project. In a subdivision development, the subdivision bond is arranged when the subdivision agreement is being contemplated by the municipality. It does take time to establish bonding for these projects and in some cases, there is work to be done in registering agreements with your legal team.
Can I deal directly with the bond company?
As a developer, you are able to deal directly with a bond company although it isn’t recommended. There are numerous companies offering developer surety products creating a competitive marketplace. Often, your cost consultant or construction lender will recommend a bond company. Using a broker will give you access to a broad range of bond companies allowing you to obtain the best terms available in the marketplace. Much like bank financing, using a broker will allow you to compare competitive quotes giving you choice and negotiating power. The fact is that Developer Surety has been a very successful line of business for bond companies and they are eager to issue new bonds on new projects.