Today’s developers know that simply meeting the requirements of the Ontario New Home Warranties Plan Act isn’t optional. Any licensed homebuilder registered with Tarion must provide financial security that protects homeowners and ensures obligations are met. For many builders, this comes in the form of Tarion Bonds.
Ferrari & Associates works with condominium builders across Ontario to secure bonding solutions that meet Tarion’s requirements while supporting business growth. In our latest expert blog article, we explain how Tarion Bonds work, why you need them, and how preparing for them can set your company apart in a competitive housing market.
What Is a Tarion Bond?
So let’s start with the basics. A Tarion Bond is a type of developer surety bond required by Tarion Warranty Corporation for Ontario homebuilders. It acts as a financial guarantee that a builder will:
- Honour warranty obligations to homeowners.
- Complete projects according to Tarion’s requirements.
- Cover any potential claims if homes are not constructed to warranty standards.
“Instead of tying up cash or letters of credit (LOC), a Tarion Bond allows builders to use a surety facility to meet Tarion’s financial security requirements” says Partner and VP of Construction, Mike Di Pinto. “This helps preserve working capital and maintain financial flexibility.”
Why Tarion Requires Tarion Bonds
Tarion’s mandate is to protect consumers purchasing new homes in Ontario. So by requiring builders to provide bonds or other financial security, Tarion ensures there are funds available if:
- Homes are not completed as promised.
- Warranty repairs are not performed.
- Deposits or advance payments need to be refunded.
For builders, securing a Tarion Bond is about credibility. It signals to Tarion and prospective homeowners that your company has the financial backing and operational strength to deliver.
Benefits of Tarion Bonds vs. Letters of Credit
Traditionally, many builders have met Tarion’s requirements using letters of credit from banks. However, we’ve seen this over and over that this can limit liquidity and restrict a developer’s growth. A Tarion Bond offers several advantages:
- A Tarion Bond preserves cash flow: Bonds do not tie up working capital the way LOCs do.
- Tarion Bonds strengthen banking relationships: Freeing up LOC capacity allows banks to support other financing needs.
- Tarion Bonds allows developers to presale their units: Based on the Tarion risk assessment, they require you to post this security in the form of letter of credit or a Tarion bond. The Tarion bond is the most efficient and cost effective way to do this.
So for many Ontario homebuilders, transitioning from LOCs to bonds is a game-changer in terms of financial flexibility.
How Tarion Bonds Are Structured
A Tarion Bond facility is established with a surety company, typically through an experienced developer surety broker. It helps to meet the financial requirements Tarion has set out in the risk assessment.
Key elements include:
- Bond amount: Tarion determines the bond amount based on their risk assessment. For example, if Tarion assesses a developer to cover $40,000 per unit in their new build and there are 100 units, they set the bond amount at $4 million.
- Indemnity agreement: Owners and key shareholders must potentially provide personal and corporate indemnities to the surety.
What Sureties Look For with Tarion Bonds
Securing a Tarion Bond isn’t automatic as Sureties underwrite based on:
- Character: The developer’s reputation, compliance history with Tarion, and track record of quality work.
- Capacity: The developer’s operational ability to complete projects, manage trades, and deliver homes to warranty standards.
- Capital: Financial strength — including the developer’s working capital, equity, and cash flow.
- Knowledgeable consultants – Tarion wants to see a fully capable team of experts backing the project including, but not limited to, a surety broker, solicitor, cost consultant, architect, engineer, etc..
Director of Surety, Kari Davis says “strong financial statements, well-documented processes, and a clean history with Tarion are critical for approval.”
Why Developers Should Review Their Tarion Bonds Facility Now
Ontario’s housing market continues to evolve. With increasing demand for housing supply and regulatory changes on the horizon, builders should evaluate their Tarion Bond facilities well in advance of upcoming projects.
Other reasons to act now include:
- Housing supply targets: Provincial and municipal governments are pushing for accelerated construction of new housing, which will increase bonding needs.
- Rising project costs: Inflation and interest rates put pressure on margins — making efficient use of working capital critical.
- Competitive advantage: Builders who demonstrate strong bonding support secure financing more easily, attract buyers, and maintain trust with Tarion.
- Avoiding delays: Applications take time. Waiting until new projects are already underway can create unnecessary stress. That’s not to say securing a bond is impossible, but proper prior planning prevents delays.
How to Prepare for a Tarion Bond Application
Developers looking to secure or expand their Tarion Bond facility should focus on:
- Strengthening financials: Invest in reviewed or audited statements that highlight working capital and equity.
- Documenting compliance: Keep clear records of Tarion registrations, warranty claims, and resolutions.
- Building a business narrative: Showcase management experience, succession plans, and completed projects.
- Partnering with a Surety Broker: An experienced broker presents your company in the best possible light to underwriters.
The Role of Ferrari & Associates
Ferrari & Associates specializes in helping Ontario homebuilders navigate Tarion’s requirements with ease. Our team understands the nuances of Tarion Bonds and works with multiple surety markets to secure competitive terms. We help builders:
- Transition from LOCs to bonds.
- Manage relationships with Tarion and surety underwriters.
- Strategically plan for future projects.
Tarion Bonds are a strategic tool for Ontario homebuilders. By securing a strong bonding facility, developers protect condo and homeowners. They also meet Tarion’s obligations, and unlock growth opportunities without sacrificing financial flexibility.
Our surety team is ready to guide you through every step of the process, ensuring you have the support you need to thrive in Ontario’s dynamic housing market. So to get in touch with our surety team, click here and let’s get you bonded!