CASUAL LEGAL: “But I’m not borrowing any money!”- Borrowing Bylaw Requirements where you may not expect them

“But I’m not borrowing any money!”- Borrowing Bylaw Requirements where you may not expect them

By Sean Ward

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

The Municipal Government Act imposes strict requirements upon a municipality seeking to borrow funds. A borrowing must be authorized by a bylaw, which in most cases must be advertised except for specific exceptions set out in the Act.

However, it often comes as a surprise that a borrowing bylaw is also required when a municipality enters into a long-term lease or purchase contract for capital property. Section 251 of the Act establishes the general requirement that a municipality may only make a borrowing if the borrowing is authorized by a borrowing bylaw. It is important to note that a “borrowing” is defined in the Act as:

“borrowing” means the borrowing of money and includes

1. borrowing to refinance, redeem or restructure existing debt,
2. a lease of capital property with a fixed term beyond 5 years or a fixed term of 5 years or less but with a right of renewal that would, if exercised, extend the original term beyond 5 years, and
3. an agreement to purchase capital property that creates an interest in the capital property to secure payment of the capital property’s purchase price if payment of the purchase price under the agreement exceeds 5 years;

So if a municipality was leasing space in a building for a term of more than five years, it could not enter into that lease agreement without first advertising and then passing a borrowing bylaw; despite the fact that the lease payments and costs of funding the lease are not actually being borrowed. Similarly, if a municipality was purchasing a piece of equipment, and the payments for that purchase were spread out over a 10-year period, that also would be considered a borrowing that must be authorized by such a bylaw.

Even in the case of shorter term leases, municipalities must be cautious that if there are rights of renewal that would take the term past five years, that could also lead to the lease being considered a “borrowing,” such that the agreement would first have to be authorized by a bylaw that complies with section 251 of the MGA.

To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-800-661-7673 or email casuallegal [at] amsc.ca (casuallegal[at]amsc[dot]ca) and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] auma.ca (riskcontrol[at]auma[dot]ca), or call 310-AUMA (2862) to speak to AUMA’s Risk Management staff. Any Regular or Associate member of the AUMA can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.