On December 18, 2024, the Ontario Government published the final version of the regulation that will allow for the use of pay on demand Surety Bonds by landowners or applicants to secure municipal obligations as a part of the planning process. This regulation was posted and brought into force on November 19th and has been slightly amended through the recently concluded consultation period. This is an issue that OHBA has long been advocating for and strongly supports. OHBA worked closely with the Surety Association of Canada on developing recommendations on how surety bonds would work in Ontario.

The regulation states that landowners or applicants “may” stipulate that a surety bond is used to secure an obligation imposed by the municipality as a condition of approval for a land use planning matter. Implicit in this is municipalities must accept them, since it is a choice the landowner or applicant makes, not the municipality.

However, anecdotally we understand that some municipalities may not be in the position to begin accepting them immediately. The regulation did not stipulate a phase in period, and we are not aware of any guidance that went from the Ministry of Municipal AOairs and Housing to municipalities regarding accepting surety bonds in place of letters of credit. As a result, this may lead to some confusion in the municipal sector with some municipalities choosing not to accept them at this point. We expect that the situation will resolve quickly and builders can begin using surety bonds rather than Letters of Credit if they choose.

OHBA has been advocating for the ability for builders to swap out existing Letters of Credit for surety bonds.  This move would free up capital held by letters of credit for builders, reduce the cost of building houses and have no risk for municipalities. Currently, it is up to the municipality to decide whether they will exchange existing letters of credit for surety bonds. There is nothing in the regulation that speaks to this, and OHBA will continue to push the Government to put in place rules that would mandate this across the province.

As part of the regulation making process the Government of Ontario asked for comments on the regulation they posted in November. As a result of the consultation there was one amendment made to the regulation regarding the acceptable credit rating required for bonds rated by the A.M Best Company Inc.

The original regulation stipulated the bonds rated by the A.M Best Company, Inc. had to have a credit rating of “A”. The Surety Association of Canada, supported by the OHBA, recommended that to foster more competition in the bond market the credit rating from bonds rated by the A.M Best Company, Inc should be lowered to “A-.” The province accepted this recommendation.

The regulation can be found here https://www.ontario.ca/laws/regulation/r24461

The final decision can be found here https://ero.ontario.ca/notice/019-9198