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Community Benefits Charges

What Is A Community Benefits Charge

What is a Community Benefits Charge?

A Community Benefits Charge, also known as a CBC, is a financial contribution that is paid to the municipality when land is being developed. This charge will be used to fund a service or facility that will benefit the community, the new development and the incoming population.

This charge will transition away from Section 37 Levies and will soon replace them. Recently, a new Bill was introduced under the Planning Act that makes some changes to Section 37. Bill 197 was created as part of the COVID-19 Economic Recovery Act, 2020. This Recovery Act was developed to help the province plan for future growth, renewal and to ultimately recover the economy after the pandemic.

Bill 197 introduces regulation 509/20 that allows changes to be made to Section 37. These changes include a new Community Benefits Charge that will eventually phase out Section 37 Levies that developers are currently paying for.

Community Benefits Charge in Detail

The Difference Between Section 37 Levies and Community Benefits Charges

The term “Section 37” refers to the section of Ontario’s Planning Act that allows developers to bypass specific zoning regulations with the condition that they provide the community with benefits. Each City has bylaw requirements when it comes to new developments.

These communities put a limit on how tall and dense a future condo can be and if a developer wants to exceed these limits, they can negotiate with city staff and local councillors to provide the community with benefits in exchange for approval of their development.

Section 37 benefits are seen as an essential tool that help enhance the community and they are used to fund infrastructure such as heritage preservation, public art, non-profit child care centres, improving park facilities and adding more green space, and upgrading or building new recreational facilities.

Section 37 and Community Benefits Charge

The new Community Benefits Charge will be similar to Section 37 Levies because they will also fund services or facilities that will benefit the community. These services can include land for parks, affordable housing, child care facilities and more. They can fund any new service or facility that will support the population coming into the community.

The main difference between a CBC and Section 37 Levies is that the CBC will be capped at 4% of the land’s value. This price is determined on the value of land calculated the day before the building permit is issued to the developer. Section 37 Levies on the other hand, were negotiated between the developer, city staff and ward councillors. The process of Section 37 Levies included a negotiation for the type of benefit that the community needed, the amount it would cost to provide that benefit and how the developer would pay.

The developer would either pay the city to provide the community with the negotiated benefit or they would add the benefit in their building or complex in the form of an indoor or outdoor amenity. With CBCs the developer is required to pay 4% of the land’s value the day before the building permit is issued and the city can use those funds to provide a service or facility they feel is beneficial.

Which Developments Will Be Eligible For Community Benefits Charges

Which Developments Will Be Eligible for CBCs?

When developers submit a proposal to the City, they are required to pay for Development Charges, Section 37 Levies and Parkland Contributions. With this new Charge, Section 37 Levies will be phased out and developers will need to pay for a CBC instead.

These charges are important because, although developers will pay for them to the City upfront, they end up passing these charges onto the buyer. Investors will receive a Statement of Adjustments during the final closing phase of their pre-construction journey that will calculate all of the outstanding balances that are still owed. Development Charges, Parkland Contributions and soon CBCs will all be calculated in this statement.

A Community Benefit Charge will now be required for most new developments with a few exceptions. Any new developments with less than 5-storeys or less than 10 residential units will be exempt from paying for CBCs. This is a long stretch from Section 37 Levies where a developer only pays as a way to receive permission to exceed the zoning height and density regulations. Any new development will essentially need to pay for CBCs.

The funds collected by CBCs can be used for a number of services and facilities that are identified by the municipality’s CBC Strategy. CBCs can also work together with Development Charges and Parkland Contributions to help fund a certain service or facility but a CBC can only be used once the City creates a CBC Strategy that outlines which services are needed in their communities.

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The CBC Strategy

Section 37 Levies will remain in effect until September 18, 2022. In this time, municipalities have a two year period to pass a CBC by-law which will transition them away from Section 37 Levies. Every municipality needs to pass a CBC by-law and in order to do so, they need to create a CBC Strategy.

The CBC Strategy needs to identify how the city will use the collected funds to benefit their community and the incoming population. This strategy needs to determine the cost and benefit of the anticipated type of service and also identify any other financial contributions including capital grants or subsidies that might be available with respect to their capital costs.

In-kind contributions may also be permitted at the discretion of the municipality which means that developers can provide a benefit or service in their condominium complex in exchange for a reduction in the cost of a CBC.

Shifting to this new charges may be baffling for some at first, but the CBC Strategy plus the 4% value cap should provide some clarity as to what services will be needed to support new developments, what they will cost and how they will affect investors.

How CBC’s Affect Investors

The new CBC by-law might provide some clarity for investors because they are capped at 4% of the land value when the building permit is issued. This means that developers will be able to calculate this value more accurately in their proforma and buyers will have a better idea of how much they need to pay for their share when they sign their Agreement of Purchase and Sale.

It is important to note that buyers are signing their Purchase Agreement a few years before the developer receives their building permit which means that the value of land can increase over those few years. However, developers always create a proforma before they start selling units which takes into consideration all of their costs including an estimate of costs for Development Charges and Levies.

The difference between the new Community Benefit Charge versus Section 37 Levies is that developers will know the value of their land when they are creating their proforma and they will have a better idea of how much this value will increase by the time they receive their building permit.

How Community Benefits Charges Affect Investors

Whereas with Section 37 Levies, the developer has to wait until they negotiate a community benefit with the city before they know how much this benefit will cost them.

This means that when investors are reviewing their Purchase Agreement, they can discuss the amount of CBC’s they expected to pay during final closing when they receive their Statement of Adjustments. Whether or not developers will let investors cap their share of CBCs is still to be determined and something we won’t know until cities make the shift from Section 37 Levies to the new charges.

Investors will start seeing more Community Benefits Charges (CBCs) within the coming years. For more information about CBCs and how they affect you, speak to one of our Platinum Agents today.

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