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What is Condominium Deposit Insurance?
In Ontario, developers are required by the Ontario New Home Warranties Plan Act to retain all purchaser deposits for condominium projects in a trust account. These deposits must remain in trust until unit registration occurs unless Condominium Deposit Insurance (CDI) is in place to protect the purchaser deposits.
Condominium Deposit Insurance is commonly referred to as Deposit Financing or Excess Condominium Deposit Insurance (ECDI). CDI is an ‘insurance policy’ that allows developers to utilize their purchasers’ deposits as a source of project funding. Once this coverage is in place, deposits can generally be used to fund either soft (pre-construction) or hard costs. Deposit financing rates are generally much lower than construction financing rates resulting in an improved ROI for your project.
Deposit Financing Timeline
Deposit Financing Terms
Terms are generally established in conjunction with terms for your Tarion Marketing & Warranty bond, prior to the launch of sales.
Deposit financing terms may allow for the release of a portion of purchasers deposit prior to construction financing to fund development soft costs.
The balance of purchaser deposit are then released in conjunction with construction financing on a monthly draw basis.
Why use Deposit Financing?
The majority of condominium developers choose to use Deposit Financing Insurance for their projects. Since the cost of deposits ranges from 0.5% to 1.25% annually, developers can access these deposits at a much lower interest rate than traditional construction financing resulting in an improved ROI for the development. With deposits typically in the amount of 15-20% of the purchase price, this can result in meaningful savings.
Example: Let’s take a 50-unit condominium selling for an average unit price of $500,000 with deposits of 20%.
Total Expected Project Revenue: $500,000 * 50 units = $25,000,000
Total Deposits: $5,000,000
Deposits Covered by Tarion: $20,000 * 50 units = $1,000,000
Deposit Financing Required: $4,000,000
We commonly see a 3-4% different in interest rate savings with deposit insurance compared to construction financing rates. This can equate to nearly $120,000 in annual savings on financing costs.
Savings: $4,000,000 * 3% interest rate spread = $120,000 annually
FCA is Canada’s Developer Surety Expert Since 1919
FCA has been providing Canadian companies with surety bonds since 1919. We have set the industry standard for turnaround time for both new and existing clients. We pride ourselves in ensuring our clients never miss out on an opportunity.
The cost of a Deposit Financing depends on multiple factors including but not limited to:
- the size of the project
- the experience of the developer
- the team supporting the project including the builder, lender, cost consultant and lawyer
- the deemed viability of the project
Generally speaking though, Deposit Financing rates can be as low as 0.5% up to 1.25% annually for newer or less experienced developers on smaller projects.
The application for Deposit Financing is usually completed at the same time as an application for a Tarion Marketing & Warranty Bond. The documents generally required are:
- Most recent financial statements for the development company
- Standard form condominium docs (should include a copy of the Standard Purchase & Sale Agreement including Completed Tarion Statement of Critical Dates and Disclosure Statement)
- A copy of the project budget including hard and soft costs
- A copy of the construction financing agreement or letter of intent
- A copy of the Tarion Terms and Conditions of Registration letter, also known as a Tarion Risk Assessment letter
- Land title details and appraisal if available
- Any Environmental Audits and Geotechnical Reports
- A completed Developer Surety Application
- A completed Personal Net Worth statement for each of the project shareholders
We highly recommend you work with an experienced Developer Surety brokerage such as FCA to ensure you are receiving the possible best terms for your project.
Yes we do. All of our condominium development projects are offered this product in conjunction with their Deposit Financing terms. Please visit our Tarion Surety bond page to learn more.
As a long-standing surety brokerage we have excellent working relationships with all of the surety companies currently writing developer surety business in Canada. Our key partners include:
- The Guarantee Company of Canada (GCNA)
- Trisura Guarantee
- Sovereign Insurance
- Berkley Canada
We know these companies well and understand their underwriting philosophies and principles. This is very important as no two sureties are alike. By understanding the appetites of each company, we are able to place our developer clients with the right surety partner. This ensures not only excellent terms but also a long-standing relationship that supports the growth and flexibility that our developers demand.
Why Choose FCA Surety?
Ease of Doing Business
We set the industry standard for turnaround time for both new and existing construction bond clients, you can expect excellence.
Trusted by Surety Markets
Outstanding relationships with all of the most reputable construction surety bond markets in the industry, giving you the power of choice.
Surety is What We Do
Our industry-leading team boasts seven full time dedicated surety professionals with a combined 80+ years of construction surety bond experience.
Our organization has been working with FCA Surety Bonds and Insurance for over 2 years. The team, led by Jamie Collum and Warren Griffiths, exceeds expectation in service, responsiveness and knowledge.
Jamie and Mike from FCA did a great job in assisting me throughout the process. Not only from the bonding requirement with Tarion but also other aspects relating to obtaining project approvals and project insurance. Would definitely highly recommend them.
FCA is one of the best companies we have had the pleasure of working with so far. Very professional, fast and always on time. Looking forward to continue working with them.
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It all starts with a conversation today with one of our surety bonding experts. Once we determine which type of surety bonds you require, we will work tirelessly to expedite these bonds for you.