Bonding for Condominiums: The Process

Many of our readers inquire about what is involved throughout the life of a bonded condominium project. With this in mind, we have created a simple article to outline the 5 major steps of Tarion Bonds and Excess Condominium Deposit Insurance.

Step 1: Register the project with Tarion & issue discussion paper for Tarion Bond.

Once you are registered with Tarion, security in the amount of $20,000 per unit must be given to Tarion to secure your warranty obligations. During the Tarion registration period, a submission is made to various bond companies. Once we receive acceptable terms, we will set up a meeting to review the terms.

Step 2: Post Tarion Bond and start selling project

Now that you’re registered with Tarion, we would issue the Tarion bond from the chosen bond company which you would post with Tarion. You are now able to start pre-selling your condominium units.

Step 3: Construction lending is determined and an ECDI commitment letter is issued

At this stage you have begun project sales and have chosen a lender. Once the commitment letter for financing is issued by the bank, we re-approach the bond company for the commitment for an ECDI facility. The reason the ECDI commitment isn’t issued in conjunction with the Tarion Bond commitment is because most of the information required for the ECDI has not been finalized at the marketing stage, and the Tarion Bond was a priority at the marketing stage.

Step 4: Bank conditions have been satisfied, construction starts, and deposits can be released

At this stage construction begins. The project monitor/cost consultant releases a monthly report outlining the progress of the project and also certifies payments. Once payments are certified, the bank and bond company release funds in conjunction with the deposit release ratio. It is important to note that in some instances the bond company will release deposits prior to the bank funding. This is seen with some of the larger, well-established developers and those with a strong Tarion Risk Assessment.

Step 5: Condominium registers and Tarion warranty period begins

At this stage, the condo corporation has formed and the mortgages have kicked in to fund the rest of the purchase price. The Tarion warranty period begins. Tarion requires security to be held for a period of one year and the amount required is based on the Tarion Risk Assessment amount. When a Tarion bond is issued, the bond company will release all of their security aside from an amount to cover the warranty period. This can be in the form of unit purchase funds held back by the lawyer, or it can be a charge against unsold units. This amount can be negotiable and comes back to the strength of the developer.

We hope this article has furthered your understanding about the bonding process for condominium projects. If you have an questions or would like to start the process, please reach out to us through the button below.