Subdivision bonds provide financial assurance that a developer will complete the required subdivision improvements such as the installation of sidewalks, streets, sewers, roads or other public infrastructure. These bonds may also be referred to as completion bonds, plat bonds, site improvement bonds and occasionally performance bonds.
Considerations regarding subdivision bonds:
- Typically, subdivision bonds are penalty bonds or indemnity bonds. A penalty bond is a surety's promise to pay the penal sum of the bond to the obligee in the event that the principal fails to complete the improvements by a certain date. An indemnity bond is a surety's promise to indemnify the obligee for actual losses suffered by the obligee up to the penal sum of the bond.
- Once improvement work commences, the developer and surety may be held liable until ALL subdivision improvements are completed and accepted. In this regard, the developer and surety would also be obligated to maintain and repair any completed improvements until ALL subdivision improvements guaranteed by the bond are completed and accepted.
- The public agency has no obligation to pay the developer for the costs of the subdivision improvements. The consideration given by the agency for the protections afforded under the subdivision bonds is the right to develop the subdivision. By accepting and acting upon this right, the developer assumes the obligation to pay for the subdivision improvements required under the subdivision agreement.
- The developer assumes the responsibility to fund the costs of constructing or placing the improvements required by the agency.
- The limitations period on most subdivision bonds runs from the completion date in the agreement or may be modified by any extensions granted by the agency.
- The surety's exposure on a subdivision bond may regularly be extended out for six to ten years, or more.
Types of Developers
Developer With Construction Arm That Self-Performs
Contractor With Shareholders That Invest In Real Estate
Real Estate Investors That Dabble In Construction
Types of Subdivision Bonds