The Only Guide to Deposit Financing Insurance You’ll Ever Need

Developing a new condominium in Ontario? You’ll need deposit financing insurance to fund the construction with your buyers’ deposits.

Luckily, we can help you acquire the perfect policy! Find out more about this insurance type below.


What Is Condominium Deposit Insurance?

The Ontario New Home Warranties Plan Act requires all developers to hold all buyer deposits for condominium projects in a trust account. Under the Act, the deposits must stay in the trust account until the unit is registered.

However, to protect the deposits, you can purchase condominium deposit insurance, otherwise known as deposit financing insurance or excess condominium deposit insurance.

CDI (condominium deposit insurance) is a policy that allows developers like you to use their buyers’ deposits to fund their projects. As soon as the coverage is activated, you can use the money to fund soft and hard costs.

The policy ensures the return of the buyers’ deposits in excess of $20,000 guaranteed by the Tarion Bond.

Usually, deposit financing costs are significantly lower than construction financing rates, allowing your project to gain a better return on investment.


What Are Soft and Hard Costs?

When it comes to budgeting for a construction project, there are a plethora of costs to consider, most of which can be split into two categories — hard costs and soft costs.

Soft costs aren’t always visible, and they don’t correspond directly to labour or building materials. They include:

  • Off-site costs
  • Loans and interest
  • Accounting fees
  • Land costs
  • Marketing, advertising, and public relations costs
  • Insurances, taxes, licenses and permits
  • Other fees

Alongside those, moveable furniture, post-construction maintenance charges, and upkeep fees are considered soft costs.

Conversely, hard costs refer to the price of the physical build. Sometimes referred to as brick-and-mortar costs, the category includes:

  • Superstructure
  • Interior finishes
  • Labourers
  • Equipment
  • Foundations
  • Drainage
  • And more

Since they are tangible, hard costs tend to be much easier to estimate. However, they vary wildly from project to project. After all, building a hospital is much more challenging than constructing an office block.

Thankfully, you can fund both of these cost types with your purchasers’ deposits once you’ve acquired deposit financing insurance coverage.


The Deposit Financing Timeline

With condominium deposit insurance, you can expect the following to happen at various stages of the development:

  • Deposit financing insurance terms — The terms of the policy are usually set up in conjunction with the terms set out in your Tarion marketing and warranty bond before the launch of sales. We’ll discuss this bond in the next section.
  • Before construction — Prior to construction, your deposit financing insurance policy could allow the release of funds (i.e., a portion of the buyers’ deposits) to cover soft costs.
  • Construction — During construction, purchasers’ deposits are released in congruence with construction financing every month.


What Are Tarion Marketing and Warranty Bonds?

The Tarion Warranty Corporation (more often called Tarion) is a not-for-profit company established in 1976 by the Ontario New Home Warranties Plan Act. It guarantees that builders will adhere to the Act if you (the developer) fail to perform your obligations. To build and sell condominiums in Ontario, you must be registered with Tarion.

All developers are required to post security to protect their buyers’ deposits. The security amount must equal a minimum of $20,000 per unit. Not only does this cover the purchasers, but it also ensures the warranty protection necessitated by Tarion. Although, if you’re a less-experienced developer, the amount of security generally increases.

For context — if you’re developing a 100-unit condominium, you’d need to post $2 million worth of security with Tarion. A Tarion bond isn’t the only option to offer that security. But normally, the surety bond is the most cost-effective method as it comes with rates as low as 0.5% for experienced developers.

Typically, this type of bond is issued alongside condominium deposit insurance policies.


Condominium Deposit Financing Insurance Coverage Limitations, Explained

Not every condominium project qualifies for warranty coverage with Tarion. The warranty covers residential condominium projects only, including conversions from non-residential buildings to residential uses (changing a hotel or an old school into a condominium establishment).

But to get warranty protection as an RCCP (i.e., residential condominium conversion project), you have to abide by the two main requirements found in the Condominium Act, ONHWPA, and the Building Code Act:

  • The project and units must be enrolled under the Ontario New Home Warranties Plan Act.
  • The builder and the vendor must be registered with Tarion.

For RCCPs, Tarion has implemented a rigorous review process, allowing them to analyze the project before agreeing to supply warranty coverage thoroughly.

Therefore, you must prepare and send in these documents to Tarion:

  • The PAR — Formally known as the property assessment report, the PAR focuses on the overview of the land and building. It should detail the general components to be converted, the condition of the property, and the specifics of the intended conversion project.
  • The CRP — Otherwise known as the capital replacement plan, it concerns the condition of the current elements. It discusses the pre-existing components, points out key risks, and describes the heritage status of the property and its attributes. Alongside that, it should include:
    • A schedule showing the projected major repairs to the pre-existing components forecasted to happen within 45 years following the condominium’s registration.
    • Another schedule depicting the major repairs that are to occur within seven years following the condominium’s registration.
  • The PEFS — Also referred to as the pre-existing elements fund study, the report offers a clear overview of the entire project. It holds some of the same information already provided in the PAR and CRP but also calculates how much the vendor must contribute to the fund.


Why Should You Use Deposit Financing Insurance?

Most condominium developers prefer to use deposit financing insurance for their projects. Why? Because it’s generally the most beneficial thanks to the low rates (between 0.5% and 1.25% per year).

You can access your purchasers’ deposits (which are anywhere from 15% to 20% of the full purchase price) at a significantly lower interest rate than other construction financing options, meaning you achieve a better ROI for the structure.


Let’s look at an example so you can see the savings in action:

You are developing a 50-unit condominium. The units come with an average price tag of $500,000. All buyers need to deposit 20% to secure their unit.

The expected project revenue is $25 million, with $5 million being deposits. $1 million of the deposits are covered by Tarion (i.e., $20,000 per unit). So, your deposit financing required is $4 million.

Commonly, there is a difference in interest rate savings between 3% and 4% compared to traditional construction financing rates. So, you could save up to $120,000 per year on financing costs by choosing CDI coverage.


How Much Does Deposit Financing Insurance Cost?

On average, deposit financing insurance can run as low as 0.5% for well-established developers. However, if you aren’t as experienced and are working on smaller projects, the annual rates can increase to 1.25%.

With that said, several other factors affect the cost of your specific condominium deposit insurance policy. These include but aren’t limited to the following:

  • The team involved in the project — This includes the builders, cost consultants, lawyers, and lenders.
  • The size of the project — Larger projects tend to equal higher deposits. But that might not raise the price as much as you’d expect if you have years of industry experience.
  • The project’s viability — Viability is the likelihood of the project’s success. CDI providers look at the economic viability of the condominium construction to decide whether it’s feasible enough to ensure or not. Typically, they use the CBA (cost-benefit analysis) here.


What Criteria Do You Need to Meet to Acquire Condominium Deposit Financing Insurance?

Acquiring condominium deposit financing insurance is much easier if you meet the following set of criteria:

  • You are an experienced high-rise and low-rise condominium developer.
  • You have a well-established track record of successfully completing past condominium projects. You’ll also need to provide proof of this.
  • You have a team of competent, highly knowledgeable developers. The insurance provider may request copies of your team’s credentials, as you’ll find out in the next section.
  • You have demonstrated strong construction abilities. You may need to provide a CCA Form 11 or a capability statement.
  • Your personal and corporate finances are strong. Evidence of this will be requested.

Even if you aren’t an experienced developer, we’ll find an underwriter with a higher risk appetite. That way, you’re still able to gain the insurance you need for your condominium construction project.


How Do You Get Deposit Financing Insurance?

Most of the time, the application for deposit financing insurance is completed alongside your application for the Tarion marketing and warranty bond.

While you may be asked for extra documents, the standard requirements are as follows:

  • Your development company’s most recent financial statements
  • The standard form condominium documents (such as a copy of the standard purchase and sale agreement, and a Tarion statement of critical dates and disclosure)
  • Land title details and appraisal, if you have access to them at the time
  • The project’s budget that includes both soft and hard costs
  • The construction financing agreement or a letter of intent
  • The Tarion risk assessment letter (otherwise referred to as the Tarion terms and conditions of registration letter)
  • Personal net worth statement for all the project shareholders
  • Environmental audits
  • Geotechnical reports
  • Your completed developer surety application

As you can see, you’ll need to provide a variety of paperwork to gain approval for condominium deposit insurance. So, we highly recommend working with a specialist developer surety brokerage to guide you through the process. Use our quick request form, and our team will connect you directly to the leading insurers in Canada.


Why Choose ConstructionBond?

Here at ConstructionBond, we specialize in connecting condominium developers like you to surety bond and insurance providers. The relationships we have with our insurers are unlike any other, enabling us to provide you with a tailored insurance solution as quickly as needed.

With us, you benefit from:

  • Knowledgeable team members — We have years of experience providing insurance to businesses and developers in the construction industry. No matter your bond or insurance need, our team knows how to handle it.
  • Secure online request form — We know you’re busy, so we’ve created an easy-to-use quote form that you can complete in a matter of minutes. Once submitted, we’ll connect you with the perfect insurer for you.
  • Clear solutions — We make sure all communications are transparent and simple to read. Clear solutions help us help you!


Frequently Asked Questions


Can You Pay for Condominium Deposit Insurance As a One-Off Payment?

Yes, you can choose to pay in two ways — on an annual basis or one-time premium payment. But most developers choose to pay for it annually.

The specific cost depends on your financial strength, the duration of the project, and the size of the establishment. Plus, you might have to pay legal costs to cover the trust account’s setup fees.


Can ConstructionBond Help You Access Tarion Warranty Bonds?

When you request condominium deposit financing insurance, we’ll recommend Tarion warranty bonds after reviewing your filled-in quote form. Our licensed providers are well-versed in providing this type of bond, allowing you to enter your condominium development project with confidence.


Is Having an Excess Condominium Deposit Insurance Policy a Legal Requirement?

No, it is not mandatory to have an excess condominium deposit insurance (ECDI) policy to sell condominium units. However, it’s generally recommended as a favourable source of funds.

ECDI coverage is required if you (i.e., the developer) want to use the purchasers’ deposits for construction costs before the building is registered.

According to Ontario’s Condominium Act, all deposits paid by the buyer have to be held in a trust account until your register the building. So, without condominium deposit insurance, you can’t use the funds to pay for the construction.


How Do You Register With Tarion?

All condominiums have to be registered with Tarion at least 30 days before construction begins.

During the application process, you might be required to submit extra documentation and complete additional steps to confirm your enrollment eligibility.

Depending on the situation, you may need to have an interview with a Tarion representative. If your construction is a high-rise condominium, then you must adhere to the design and site review requests as set out in Registrar Bulletin 19. Builders must complete a Condominium Project Profile form, fill in a risk assessment, and adhere to any additional interview necessities.

Once you complete the form and risk assessment, Tarion suggests your project’s security requirements, which you’ll need to post before confirming your enrollment.

As soon as you gain written confirmation, you can enter into purchase agreements and take deposits from your buyers.


What Insurance Providers Does ConstructionBond Work With?

We pride ourselves on the relationships we share with the leading insurance and surety bond providers in the country, including:

  • First Media
  • Elliott Special Risks LTD
  • Eagle Underwriting Group Inc
  • Creechurch Insurance
  • Cowan Insurance Brokers
  • Chutter Underwriting Services
  • Chubb Insurance
  • Chartis
  • Chesterfield Canada, Inc. Wholesale Insurance Brokers
  • CFC Underwriting
  • Berkley Canada
  • Aviva
  • AM Fredericks Underwriting Management Ltd.
  • Allianz
  • ACE Insured





What Other Insurance Policies Can ConstructionBond Help You Acquire?

Below, you’ll find a sneak peek of some other industries we find coverage solutions for:

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