What Are Development Charges or Development Levies?

What Are Development Charges and Levies?

Definition and Purpose

• Development charges are fees charged by municipalities to recover the cost of growth. The principle behind these charges is that growth should pay for growth. Fees from new developments—residential, commercial, institutional, or industrial—fund the necessary infrastructure to support this growth. See an example Homegram listing where developer mentioned development is capped at certain amount.

Developer Responsibilities

• Developers of new pre-construction condos or commercial properties must pay for the new infrastructure required for these developments.
• These charges prevent taxpayers from bearing the costs associated with growth.

Necessity and Scope

• As a municipality’s population grows, so does the need for services from new developments.
• Development charges fund various infrastructure needs, such as water management, wastewater systems, new roads, and more.
• An example can help illustrate how development charges work.

Types of Development Charges and Levies

The Development Charges Act outlines the services that municipalities can charge for. These charges, which are a crucial part of understanding what are development charges, help cover the increased capital costs required by new developments. Types of services that may be included are:

• Water supply services, including distribution and treatment
• Wastewater services, including sewers and treatment
• Stormwater drainage and control services
• Electrical power services
• Transit services and the construction of new transit infrastructure
• Waste diversion services

There are also soft services designed to support the growing population in the city. These services include:

• Police services
• Fire protection services
• Ambulance services
• Long-term care services
• Parks and recreation
• Public health services
• Child care services

How Development Charges Are Calculated

Calculation Rules

• Municipalities must follow specific rules outlined in the Development Charges Act to determine the development charge rate.
• The rate is calculated by dividing the dollar value of significant growth projects by the projected growth.
• The value of growth projects is determined by factors such as the number of major projects and their timing.
  

Determining Collection

• The city conducts a background study to determine how development charges are collected.
• This study establishes how much they can charge for a new development based on factors like location, type of development (low-rise or high-rise), and the estimated cost of building services to support the development and incoming population.

Charge Basis

• The city calculates charges based on the square footage of the proposed building.
• Developers are charged per residential unit, meaning the size of the unit and the city you invest in will influence the amount of development charges.
• This is known as a proportionate contribution towards development charges, a term often seen on the Agreement of Purchase and Sale, indicating that you pay for your portion based on your unit’s size.

Who Pays for Development Charges?

Buyers’ Responsibility

• Buyers of pre-construction condos ultimately pay for development charges.
• These charges are not directly imposed by the municipality on the buyers. Instead, developers pay these charges upfront when they obtain their building permit from the city and then pass them on to the buyers at final closing.

Purchase Agreement

• Development charges are specified in a buyer’s Purchase Agreement, estimating the amount based on the size of their unit.
• Although these charges are mentioned in the Agreement of Purchase and Sale, buyers are not required to pay them until the final closing date, when they receive their Statement of Adjustments.

Timing and Potential Increases

• Developers do not pay for development charges until they receive their building permit from the city, which can be years after a buyer signs their Purchase Agreement.
• During this time, the cost of development charges may increase. Consequently, development charges can change between the signing of the Purchase Agreement and the final closing.
• It is the buyer’s responsibility to cover these charges even if they have increased. However, we will provide guidance on how to avoid unexpected increases so that there are no surprises by the time of the final closing.

Understanding Capped Development Charges and Levies

Final Closing Process

• Legal Review
  • Buyers typically meet with their pre-construction lawyer to review all final paperwork before receiving the title transfer to their new property.
  • This ensures clarity on final closing costs and any outstanding balances as per the Statement of Adjustments.

Components of the Statement of Adjustments

• Detailed Breakdown
  • The Statement of Adjustments includes:
    • The purchase price of the condo unit
    • HST tax/rebate
    • Total deposits paid
    • Occupancy fee
    • Realty taxes
    • Breakdown of development charges (levies), which may include:
      • General Levies
      • Education Levies
      • Parkland Contributions
      • Public Art Levies
      • Green Standard Levies
      • Section 37 Levies (now Community Benefits Charges)

Importance of Capped Development Charges

• Definition and Benefits
  • Capped Development Charges mean agreeing with the developer on a fixed price to be paid at the final closing, as stated in the Purchase Agreement.
  • This provides certainty about the amount payable several years later at the final closing, protecting against potential increases in development charges by the city.

Buyer Protection and Guidance

• Expert Assistance
  • Our platinum agents specialize in the pre-construction condo market, offering expertise and guidance throughout the buying process.
  • They ensure buyers understand their rights and help them navigate strategies to safeguard against unexpected costs.

An example – How development charges are calculated?

Here’s an example to illustrate development charges with numbers:

Imagine a new condominium development where the city determines the total cost of necessary infrastructure upgrades to support the new residents is $1,000,000. The projected number of new units in the development is 100.

According to the Development Charges Act, the development charge rate is calculated as follows:

Total Development Charge = Total Cost of Infrastructure / Number of Units

Total Development Charge = $1,000,000 / 100 units

Total Development Charge = $10,000 per unit

Therefore, each unit in the condominium development would be charged $10,000 in development charges to cover the cost of necessary infrastructure upgrades.