Purpose Statement
This procedure establishes a framework for the acceptance, handling, and custody of securities to ensure the obligations of developers, builders, land-owners, or others under various development related approval processes are met by setting out;
- The types of securities acceptable to the Corporation of the Town of Oakville (hereinafter after referred to as the town);
- The responsibility for approvals, set up, custody and monitoring;
- The authority for processing transactions on securities;
- The process and treatment of unclaimed and forfeited securities.
Scope
This procedure applies to the criteria for accepting, handling, and custody of development and damage related securities. The determination of the value of securities is through town by-law, rate, or calculation of an amount sufficient to cover costs of completing/rectifying works. Securities required in connection with contracts, including bid solicitations provided for through the Purchasing By-law and damage deposits associated with facility rentals, are excluded from this procedure.
Procedure
Security Calculation and Receipt
Where development related security is required to ensure performance, the amount will be determined by the applicable department responsible for the required works in accordance with the relevant by-law, policies, practices, and standards (e.g. Parks and Open Spaces reviews the valuation of required park related structures, Planning and Development Engineering review the valuations of required road, sidewalk, landscape, stormwater and drainage infrastructure). In general, securities are required to be 100 per cent of the estimated costs or sufficient to cover costs of completing/rectifying works. The required security and other
financial obligations are then incorporated by notation or schedule into the relevant agreement or permit process. In the case of an agreement, the receipt of the required security is ensured through the “clearing conditions process”. In the case of a permit, the receipt of the required security is ensured as a requirement prior to issuance of the permit.
Authority, Form and Custody of Security
Security may be provided by electronic funds transfer, certified cheque, bank draft, or unconditional irrevocable stand by letter of credit (hereinafter referred to as “letter of credit”). In addition, for development obligations under the Planning Act a surety bond is acceptable. If a surety bond is provided as security, it must be in compliance with the town’s surety bond template and the requirements under the Planning Act and Ontario Regulation 461/24 (hereinafter referred to as “the regulation”). If a letter of credit is provided as security it must be in compliance with the town’s letter of credit template and acceptable financial institutions listing by the security administrator. For the purposes of this procedure, performance bonds and letters of guarantee are not considered acceptable forms of security.
The criterion for acceptance is:
- The Form shall:
a. Be issued in Canadian Funds
b. Specify that the letter of credit is irrevocable
c. Be registered in the name of the Corporation of the Town of Oakville
d. Reference the project or agreement file number
e. Include an automatic renewal clause requiring the Financial Institution to provide 30 days advance notice to the Treasurer or Deputy Treasurer, by registered mail or courier, if it intends not to renew. Failing to do so will deem the Letter of Credit to be automatically renewed for a further year and so on from year to year thereafter. - Credit Rating
a. Financial institutions must possess a credit rating or equivalent credit rating of R-1(Mid) or higher as provided by the Dominion Bond Rating Service (DBRS) or an equivalent rating by one of the other acceptable ratings agencies recognized by the regulations of the Municipal Act, 2001 (i.e. Fitch, Moody’s, Standard & Poor’s). - Minimum Asset Size
a. Financial institutions must have a minimum of $30 billion (U.S.) in world-wide assets.
The town’s standard letter of credit template and listing of currently acceptable financial institutions is attached as Appendix A. Institutions not on the accepted listing will be reviewed upon request, if an applicant submits proof to the town that the institution fulfils all acceptance criteria.
A surety bond must be issued by a Canadian surety provider who can provide proof of a minimum credit rating of
- "A" or higher as assessed by Dominion Bond or Rating Service, or;
- "A-" or higher as assessed by Fitch Ratings, or;
- "A3" of higher as assessed by Moody's Investors Service Inc.; or
- "A-" or higher as assessed by Standard & Poor's ; or
- "A-" or higher as assessed by A.M. Best Company, Inc.
When a surety provider that has issued a surety bond received and held by the town subsequently, in the opinion of the town Treasurer, ceases to meet all or any of the requirements of this procedure or to provide adequate protection to the town, the town may, in its sole discretion, require a new security to its satisfaction, to be provided to the town from the owner of the securities. This new security shall be received within ten (10) days of demand for same, and the original surety bond will be returned and/or exchanged for the replacement security. In the event the new security is not received as required, the town may draw upon the original surety bond.
Where there is doubt as to the credit rating or other qualification of a surety provider, the town Treasurer shall be satisfied that the surety provider meets the requirements of this procedure.
The surety bond to be provided to the town issued by a surety provider shall be irrevocable, unconditional, shall constitute a primary obligation, and shall be in the form and on the terms of the “Development Agreement Surety Bond” template attached hereto as Appendix “B”.
Interest
Interest is not paid on securities held.
Authorization to draw on, release or reduce security
The director or designate of the department responsible for the secured works may authorize reduction or release of the security (based on fulfilment of the secured obligations to the satisfaction of the town as evidenced by inspection and certification documentation) by forwarding a written request to the security administrator. The director or designate of the department responsible for the secured obligations may also authorize a draw or demand on securities where obligations under the applicable agreement or by-law have not been fulfilled to the satisfaction of the town. The security administrator will then process the draw, reduction, or release documents in the case of a letter of credit and demand in the case of a surety bond, or the cheque requisition in the case of a cash security release/reduction or journal entry to the appropriate fund in the case of a draw. Proceeds from a letter of credit draw or surety bond demand are credited by the security administrator to the performance deposit account kept for this purpose.
Security Draws/Demands
Should the owner of the securities fail to fulfil the obligations for which security is held, the town may draw on or make a demand on the securities to fulfil the obligations or to acquire
the services of a qualified contractor to fulfil the obligations. Draws or demands will be in accordance with the applicable agreement or by-law under which the security was posted.
The requirement for automatic renewal dates provides assurance that letters of credit do not expire without the obligations being fulfilled to the satisfaction of the town. However, it is the responsibility of the security administrator to monitor expiry dates to ensure compliance. If a notice of non-renewal of the letter of credit is received by the security administrator and the secured obligations are not deemed to be fulfilled by the department responsible for approving the fulfilment of the obligations a draw may be initiated. Once the draw documents are prepared, they are endorsed by the Treasurer or designate in accordance with the terms of the letter of credit template criteria. In the case of a surety bond, if an insurer wishes to terminate its obligations under the bond, the requirements listed in the regulation regarding notice and replacement securities must be satisfied.
Unclaimed Security
The director or designate of the department responsible for the secured works is responsible for confirming whether all or a portion of the securities should (1) continue to be held to secure the relevant obligations under the applicable agreement or by-law; (2) be drawn against to fund deficiencies and the money treated as liquidated damages for the obligations secured under the applicable agreement or by-law; 3) released to the owner of the securities in accordance with the applicable agreement or by-law; or 4) forfeited and transferred to the town’s capital reserve.
Where securities are to be released, the town will endeavour to contact the entitled party. Methods utilized shall include, but are not limited to regular mail,web searches, etc. If the entitled party is found, the securities will be released. In the case where the entitled party cannot be located, and funds continue to be unclaimed, they shall be added to a listing which the security administrator will prepare. This listing shall be published on the town’s web site and as a public notice advising that all persons having any claim to any of the money listed are required to contact the security administrator and prove their claims within 90 days of the publication of the notice. Upon expiration of the 90 days, all money for which there is no claim will be transferred to the town's capital reserve.
Forfeited Security
Should the owner of the securities fail to fulfil the obligations for which the securities are held, and the related approval process has been expired for a period of not less than four years, the securities are considered forfeited and will be transferred to the town’s capital reserve following confirmation from the director or designate of the department responsible for the secured works. This applies to the following property related securities: site alterations, road cuts, tree preservation and development engineering (including development engineering site plans).
Notwithstanding this provision, where a by-law or agreement establishes an alternative process for the treatment of forfeited securities, the relevant by-law or agreement shall be followed.
Definitions
Performance Bonds/Letters of Guarantee – a financial guarantee issued by trust companies, credit unions and financial institutions to one party in a contract against the failure to meet specified obligations of the other party. Payment is dependent on proof that obligations were not met.
Security administrator – the Manager, Development Financing & Investments or designate.
Surety Bond – a bond issued by a licensed insurer under the Insurance Act providing a financial guarantee in a form that meets all requirements included in Ontario Regulation 461/24. The town may, at its sole discretion, determine that the principal has defaulted and demand payment. The municipality shall be guaranteed payment from the insurer.
Unclaimed Securities – cash securities which are no longer required by the town, but which have not been released because the owner cannot be located, or the owner has not come forward.
Unconditional Irrevocable Stand by Letter of Credit - a legal undertaking by a financial institution to honour, without inquiry, and make payment on specific demand of the holder. It is not subject to change or cancellation by the financial institution.
Responsibilities
The security administrator is responsible for the safekeeping of all securities received by the town, and for processing all draws, reductions or releases of security. The department designate responsible for administration of the applicable development related approval process shall determine the amount of securities required or available for release and be the authority for providing direction on security actions. Authorizing actions on securities shall be the responsibility of the director or designate of the department responsible for ensuring the secured works meet town requirements through inspection, certification or other designated means. The security administrator shall be responsible for the custody and processing of authorized actions on securities.