If you are buying or selling a licensed daycare centre within the City of Toronto that participates in the Canada-Wide Early Learning and Child Care (CWELCC) program, recent procedural changes at Toronto Children’s Services (TCS) will significantly impact your transaction timeline and cash flow requirements.
The Review Process
The City of Toronto will not begin its formal review of a new purchaser until the transaction is fully closed. This means the following must be completed before the City assesses if the CWELCC agreement can continue:
- All shares must be legally transferred.
- The transaction must be closed.
- The Ministry of Education (MOE) license must be updated to reflect the purchaser as the new licensee.
Mandatory Documentation List
Purchasers must submit a comprehensive package to the City for review. Requirements now include:
- Transaction Documents: Fully executed copies of the Share Purchase Agreement (SPA).
- Legal Confirmations: Lawyer-signed letters from both the Seller and Purchaser confirming the completion of the sale.
- Ministry Approval: A signed Letter of Acknowledgment from the MOE regarding the change of control and the updated License/License Letter.
- Corporate Records: Updated Articles of Incorporation and Form 1 (Notice of Change).
- Compliance: Valid Certificate of Insurance and a Lease/Landlord Agreement (or consent to similar terms).
- Financial Viability of Purchaser: Audited financial statements, bank statements, and proof of access to credit of the Purchaser.
- Purchaser’s Operator Experience: Evidence of the purchaser’s history in childcare or relevant management experience.
Critical Financial Warning: The “3-Month Funding Pause”
Perhaps the most significant change is how the City handles funding during the transition. CWELCC funding is paused at the closing date.
1. The Review Timeline
The City of Toronto can take up to 3 months to review the purchaser’s information and decide whether to approve the continuation of the CWELCC Service Agreement.
2. The Cash Flow Gap
During this 3-month review period, funding is suspended. However, purchasers are strictly prohibited from charging parents the full (non-CWELCC) fee. Doing so risks permanent removal from the program.
Example: If a centre receives $80,000/month in CWELCC funding, a purchaser must have at least $240,000 in liquid capital available at closing to cover operating expenses (rent, payroll, etc.) while waiting for the City’s approval.
3. Financial Viability Test
The City may require proof that the purchaser can sustain the centre with zero income for approximately 90 days.
Experience Matters
The City of Toronto has introduced a stricter review of childcare experience. If a purchaser has no prior history in the sector, there is a heightened risk that the City will not approve the transfer of the CWELCC agreement.
Summary Checklist for Buyers and Sellers
- Plan for a 3-month delay: Do not expect immediate funding post-closing.
- Verify Experience: Sellers should vet potential buyers for childcare experience to ensure the deal doesn’t collapse during the City’s review.
- Secure Extra Capital: Ensure the buyer has a “bridge fund” to cover 100% of operating costs for at least one quarter.
