Developers and owners use Surety Bonds to guarantee performance and completion of subdivision projects. These bonds are called “subdivision bonds,” “performance bonds,” “site improvement bonds,” “completion bonds,” “performance guarantee,” or “plat bonds.”

The process begins with an application to the governing body responsible for overseeing land use where the project is located. The application includes the proposed configuration of the project, including public improvements necessary to serve the project.

Many municipalities require by law or ordinance that a developer or owner, who undertakes a housing or industrial subdivision, purchase a Subdivision Bond that guarantees specified improvements will be installed by the owner or developer within a certain time period and according to the governing body’s requirements. The specified improvements generally include the construction and maintenance of streets, sidewalks, lights, curbs, landscaping, sewers and water mains.

The installation of improvements is a condition imposed on a developer or owner for the project to proceed. The developer and owner is required to produce an acceptable security to guarantee completion and payment of the work. The bond usually guarantees that the improvements will be made at the expense of the developer and the owner. The improvements will become property of the public entity once the work is completed.

Developers and owner can use other instruments to provide performance guarantees. Many public entities will accept Tripartite Agreement, Certificates of Deposit, and Irrevocable Letters of Credit. However, each of these alternate forms of financial security possesses significant downfalls.

A Tripartite Agreement places direct disbursement control of the construction funds with the governing entity responsible of overseeing the land. Many times the governing body is not equipped to handle these agreements. Delays are encountered due to cumbersome procedures including additional inspections and approvals necessary to release funds.

Certificates of Deposit (CDs) are the funds of the developer or owner that are posted to the bank as a financial guarantee for the completion and payment of the improvements. In the event of a claim or default, the funds are immediately available to the governing body, regardless if the contractor is at fault.

When a developer or owner posts an Irrevocable Letter of Credit (ILOC), the governing entity has the ability to withdraw funds if the entity believes the developer or owner has breached their obligations. The developer and owner can rarely prevent the withdraw of their own funds.

Subdivision bonds do not possess the downfalls of the listed alternative forms of guarantee. Many advantages exist that make subdivision bonds very attractive to developers and owners.

Automatic forfeiture and disbursement control of funds are not possible. A Subdivision Bond guarantees performance and completion. In the event of a claim, the Surety Company will facilitate a resolution and not forfeit the security of the developer or owner.

The Surety Company will investigate all claims to determine liability. The claim department of the surety company will handle all claims, allowing the owner and developer to focus on the project. Also, the full amount of the bond is available to the governing body in the event of a claim, regardless of how much work the developer or owner has completed.

A Subdivision Bond provides the developer or owner with surety credit, which is separate from the developer or owner’s source of funding. The developer or owner may avoid an extended commitment of capital and evade the financial strain of obtaining an alternate form of security. Bonding Companies can finance the contractor when in tight cash flow positions.

A Subdivision Bond typically provides the government body with a 100% Maintenance Bond for 12, 18 or 24 months. A Maintenance Bond guarantees the developer and owner will maintain the improvements for a specified period of time once the governing body acknowledges that work has been completed satisfactorily.

Early exoneration or release from a project may reduce the cost of the Subdivision Bond. A 1 year maintenance bond is included in the initial premium charge. There are no qualification fees.

A Subdivision Bond guarantees the installation and maintenance of improvements required by a governing body for a fraction of the cost of the project. The developers or owners maintain control of their own funds and receive the expertise of a Surety Company if a claim or other problems occur.

To initiate a Site Improvement Bond submission, please refer to our MAS Site Improvement Bond Checklist:

Professional Developer and Contractors: Click Here

Landlords, Business Owners and Individuals: Click Here

Site Improvement Bond Questionnaire: Click Here

For additional information, please feel free to contact us:

Phone: 877-426-7542
Email: info@masurety.com