Understanding the Purpose and Requirements of Subdivision Bonds for Land Development
Subdivision bonds are a type of surety bond required by local government agencies before approval of a development project. Often referred to as site improvement bonds, improvement performance bonds, and improvement payment bonds, they are required by cities, counties, or other public entities when filing a parcel and tract map or obtaining a building permit.
Subdivision bonds guarantee that the developer completes public improvements as they relate to their project or that their project might interfere with, such as streets, sidewalks, and drainage. This protects the municipality by ensuring the necessary infrastructure requirements are met at no cost to the public. Developers are required to post a subdivision bond early in the land development process for residential or commercial subdivision projects, typically before construction or map recording.
How to Complete the Bond Application for Your Subdivision Project
Here is the general process for applying for a subdivision bond to fulfill one of the requirements for your subdivision project.
How a Developer Can Improve Chances for Quick Approval
Here are ways developers and property owners can increase their chances of having their bond applications accepted, meet surety requirements, and be approved without delay.
- Submit a Complete Bond Application
Provide all required information, including personal and business financial statements, city/county bond forms, and engineer’s estimates.
- Ensure Project Financing Is in Place
Have a construction loan or approved funding ready when applying, as sureties look for proof of liquidity to fund public improvements.
- Be Proactive and Responsive
Work closely with your surety agent and respond quickly to document requests. This ensures there are no gaps or missing details that can slow down underwriting approval.
- Include All Supporting Documentation
This includes bond forms, permit documents, improvement agreements with the city or county, and legal entity records (LLC operating agreement, trust document, etc.). See Step 2 of our “How to Complete the Bond Application for Your County Subdivision Project” section to know more.
Creative Solutions to Obtain Subdivision Bonds for Developers Who May Not Meet a Surety's Underwriting Requirements
If the principal’s company or financial profile may not meet a surety’s underwriting requirements, here are some creative solutions they can take to increase their chances of bond approval.
- Funds Control (Escrow Arrangement)
If the principal does not meet the surety’s risk criteria, a third-party administrator can be appointed to manage project payments to reduce risk and provide added assurance to the surety.
- Bonding the Contractor Performing the Work
There are times when a surety may require the developer to obtain performance and payment bonds from the contractor building the improvements. This gives assurance that the contractor being hired has been vetted by a surety and is backed by a surety’s guarentee.
- Cash Collateral
Posting a portion of the bond amount as cash security may satisfy underwriting requirements for developers with limited credit or liquidity.
- Deed of Trust on the Land
If the land is unencumbered with a mortgage, the principal can use the land as collateral to demonstrate commitment to completing the project.
- Partner with an Experienced Surety Agent
They can guide applicants through non-standard bonding solutions to make bonding projects feasible.
Avoid the Common Pitfalls of the Subdivision Bonding Process
Here are the common challenges principals can avoid to prevent delays in their subdivision bonding process.
- Incomplete or Delayed Applications
Missing financials or failing to submit a complete bond application is a top cause of delay
- Lack of Verified Funding
Sureties require proof that project financing is secured and ready to fund improvements. If a bank loan isn’t approved yet or adequate cash has not been set aside, it can prevent bond issuance.
- Miscommunication with the Municipality
Communicate with the city or county and confirm you have the correct bond form and bond amount required.
- Delays in Document Turnaround
Slow responses or delays in providing updated financials can prolong underwriting review.
Get a subdivision quote now
We want to know more about how we can help your construction company get the right contractor bond for your next project. Fill out the form and one of our local expert bonding agents will be in touch with you shortly.
Get a subdivision quote now
We want to know more about how we can help your construction company get the right contractor bond for your next project. Fill out the form and one of our local expert bonding agents will be in touch with you shortly.
"*" indicates required fields
Work With a Surety-Only Bonding Agency to Simplify the Process and Save Time
CSBA is a surety-only agency specializing exclusively in bonding services. With over 225 years of combined surety underwriting experience, we have helped countless property owners and developers through the subdivision bonding process. Our local agents understand the unique requirements of California municipalities and are here to guide you through every step, from the start of the application process to bond exoneration at completion of the project.
Ready to experience the CSBA difference? Get a free subdivision quote today from the bond agency trusted by California developers since 1984.
Answers to Common Questions About Cost, Completion, Requirements, and More
The subdivision agreement outlines the developer’s obligations related to public improvements. It provides a legal framework connecting the developer, the municipality, and the surety.
This agreement allows the surety company to understand what they are covering under the subdivision bond. Without this document, the bonding company cannot accurately assess the risk and scope of the commitment.
The city or county determines when subdivision bonds are required and the bond amount required. They also determine which specific bonds must be provided and under what terms the bond is held and released.
If improvements are not completed as agreed, the municipality can file a claim against the bond. The surety company backing the bond can respond in one of three ways to fulfill the bonded obligation without delay to the public improvements:
- Continue the project with the current contractor.
- Hire a new contractor to complete the work.
- Provide a payment directly to the public agency to allow them to hire a contractor independently.
After the surety fulfills the obligations under the bond, the developers are financially responsible to reimburse them for any losses.
Changes in the project scope, such as increased grading, utility work, or additional lots, may affect the required bond amount. Any adjustment must be approved by the city or county that initially required the bond. When approved, the principal must submit a bond rider through their surety agent to adjust the penal sum of the bond.
Completing early does not impact the bond premium, as it is fully earned upon issuance. The bond will remain in force until the municipality or county officially releases it.
The principal of the bond, whether it’s the developer or property owner, must request a letter of exoneration, also known as a bond release, from the city or county to release the bond upon project completion.
If the project is not completed during the initial term of the bond, the bond will automatically renew. If a project is completed during a renewal term and the bond is exonerated mid-term, the principal can be eligible for a return premium for the unused portion, depending on the date of the bond’s release.
Get a subdivision bond quote now
We want to know more about how we can help your construction company get the right bond for your next project.
