Subdivision Developer Surety Bonds are contract bonds that protect municipalities against financial damages caused by developers failing to implement the improvements stipulated in their plat agreement. They are commonly referred to as completion bonds or plat bonds. Uncover the best info about Subdivision Developer Surety Bonds.
The first step to getting a surety bond is contacting an established agency. They will discuss your unique circumstances and help identify which type of bond will best meet them.
What is a Subdivision Bond?
Subdivision Developer Surety Bonds are performance bonds designed to guarantee that landowners/developers of new subdivisions will perform improvements according to specifications and within an agreed-upon timeframe. Municipalities often require them as part of development contracts or as an alternative payment option. They’re often called plat or completion bonds and differ from traditional Construction or Contract bonds in that all costs related to community improvement projects are borne by the Principal (the Landowner/Developer) rather than by an Obligee (an agency).
Bonds hold developers responsible for building or renovating vital community systems such as streets, sidewalks, sewer systems, and drainage ditches that serve their respective communities – such as streets, sidewalks, sewage treatment plants, or drainage ditches. This increases public safety while creating opportunities for contractors serving these communities to improve work for themselves.
As with other performance bonds, the principal must pay an initial premium and any valid claims made against them must be covered by them directly, unlike insurance policies, which cover claims on an ongoing basis since there is no financial responsibility of any sort assumed by surety companies to settle claims against their clientele.
Subdivision bond applications follow a similar application process as other construction/contract bond applications; an underwriter will review project details, the work being performed, and associated costs before reviewing credit standing and personal financial data on principals and owners alike. They may request three-year-end financial reports from principals as well as concurrent personal financial statements for all owners, resumes for key personnel, and copies of any trust, partnership, or operating agreements for consideration by the underwriter.
What are the requirements for obtaining a Subdivision Bond?
Subdivision bonds provide developers with assurances that they will fund and complete various public improvements within a new land development while assuring municipalities of compensation should construction not meet specific standards or requirements.
Subdivision bond applicants differ from standard contract performance bonds in that they must submit evidence of financial strength, personal and business credit statements, and higher risk profiles than most bonds do. Due to this factor, premiums for subdivision bonds tend to be slightly higher than other options.
Experienced developers tend to find it easier to secure these types of bonds; however, newcomers or those undertaking larger projects than before could face challenges when applying.
Underwriters must consider not only a principal’s credit and financial history but also the size and duration of any project to determine its risk level. Extensive or prolonged projects increase their level of risk exposure for underwriting.
Developers should also understand their bond’s terms and conditions, which include filing a plat with the local governing authority before beginning construction work. Failure to do so could result in claims against their bond. Fortunately, Viking Bond Service offers programs that help even those with poor credit obtain the bonds they need.
What are the benefits of obtaining a Subdivision Bond?
Subdivision bonds provide municipalities with assurances that contractors will complete required improvements on time while also helping protect property owners in case any contractor cannot finish the job as promised. Without this type of bond in place, local authorities may deny an aspiring developer the right to proceed with construction planning or work at certain sites.
These bonds guarantee various elements necessary for plant approval, such as streets, potable water access, sanitary sewer services, and stormwater control devices that serve new residential and commercial properties. When claims are filed against these bonds, surety companies pay the obligee up to the total value of the bond; once these claims have been settled, they pay back any costs related to settlement plus interest and fees from the principal.
Due to the higher risks involved with developer bonds, surety companies carefully examine applicants’ financial strength and experience before providing one. They require evidence of successful project completion while knowing when they anticipate completion—projects completed more rapidly will pose less of a threat to surety companies.
How much does a Subdivision Bond cost?
Subdivision bonds are often required when beginning construction on a new building or development. They provide local governments with protection so that the developer can fulfill all contract requirements, such as public improvements like streets, sidewalks, and grading. While costs will depend on project size and applicant experience, a good rule of thumb would be to contact a licensed and experienced surety agency such as Schmalz & Associates, who can walk you through the application process and help submit all necessary information and paperwork required to secure fair quotes for surety bonds.
Surety bonds provide access to cash quickly and can be used instantly for unexpected cash requirements during construction. Selecting a specific bonding company offering subdivision bonds will also give an edge during underwriting and approval processes.
Relying on a company that specializes in these bonds also has other advantages: their claims staff will know exactly how to handle any disputes that may arise and keep the claims process moving smoothly, so you’ll get reimbursed quickly. Plus, surety bonds serve as an excellent way to demonstrate to local government agencies that your business is responsible, accountable, and motivated to fulfill contractual obligations, giving them more confidence to enter contracts with you, which could potentially bring in new work for your business!
