Since Ontario Regulation 461/ 24 was added to the Planning Act, developers can use surety bonds as a modern alternative to letters of credit and cash deposits. Backed by provincial regulation, surety bonds give municipalities the same financial protection while helping you keep more capital available to fund your projects.
With a surety bond, you can:
A surety bond is a financial guarantee regulated by the Insurance Act that forms a binding agreement between three parties: a developer or builder, a municipality, and a surety company acting as the insurer.
Otherwise stated, a surety bond serves as a safety net for municipalities, providing the funds to complete a project if the initial developer hired can’t finish it. This safety net ensures roads, sewers, and other municipal infrastructure aren’t left partially built.
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A surety bond is a financial guarantee issued by an insurance company. It promises a municipality that a developer’s obligations under a planning approval, like building roads or sewers, will be completed. If the developer defaults, the municipality can claim funds directly from the bond.
Not exactly. A surety bond is issued by an insurer, but unlike regular insurance, it doesn’t protect the developer. It protects the municipality. If the surety pays a claim, the developer remains responsible for reimbursing the insurer.
No. While Ontario now allows municipalities to accept pay-on-demand surety bonds, adoption varies. Some municipalities have already updated their policies, while others still require cash or letters of credit. Developers should confirm acceptance early in the planning process.
Surety bonds provide municipalities with the same guaranteed payment but without tying up a developer’s cash or bank credit. This frees up capital for construction or land acquisition. They are also more flexible, offering features like partial drawdowns and replacement security.
If a municipality hasn’t adopted surety bonds, developers must still provide cash or a letter of credit to secure obligations. A broker can help advocate with municipalities, explain the benefits of bonds, and monitor updates to local policies as acceptance expands.
Replacement security means swapping one form of financial security for another if required. For example, if an insurer’s credit rating drops, a municipality may require a developer to replace the bond with a new bond, letter of credit, or cash deposit.
Ontario regulations require municipalities to monitor insurer credit ratings. If an insurer no longer meets the standards, the municipality can demand replacement security. In that case, the developer must provide a new bond from an eligible insurer or substitute another approved security.
