For developers and property owners in California, securing a site improvement bond is a standard part of the project kickoff. However, knowing how to efficiently close out that bond is equally critical. Failing to properly exonerate a bond can lead to unnecessary premium costs and lingering liability long after the physical work is complete.
Here is a guide to the workflow, requirements, and proactive strategies for successfully closing out your site improvement bond.
The Workflow for Bond Closeout
Closing out a site improvement bond requires coordination between the property owner, the construction company performing the work, the government agency, and the surety company. The process typically follows these steps:
- Inspection
The property owner or developer contacts the government municipality (city or county) to arrange for an inspector to verify that all improvements are complete and sign off on the work.
- Official Release Letter
Once the inspector acknowledges completion, the owner obtains an official letter from the agency. This letter must explicitly state that the work is complete and the bond is exonerated.
- Notify the Surety
The surety company requires this official release letter to remove the liability from the property owner. Once the surety receives the letter confirming the bond number and release status, they can officially close the file.
Common Delays and How to Avoid Them
One of the most frequent causes of delay is simply forgetting the bond exists once the project is finished.
Site improvement bonds often have an initial two-year term. If a project is completed in six months, but the owner fails to notify the agency or surety, the bond remains in force. Two years later, the owner may receive a renewal invoice for a project they thought was closed.
Trying to obtain a release letter years after completion can be difficult. Staff at the municipality may have changed, and tracking down the right person to sign off on old permits can cause hold-ups and stress.
Proactive Strategies for Success
To prevent these delays, organization is key. We recommend the following:
- Maintain a Checklist: Keep a dedicated file with the permit number, inspection information, a copy of the bond, and the surety company's contact details.
- Document Contacts: Write down the names of the agency personnel you speak with throughout the project.
- Act Immediately: Request the letter of exoneration the moment the inspector signs off on the work.
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Selling a Property with an Active Bond
It is a common misconception that selling a property automatically cancels the bond. This is not the case. If a property owner sells the land without addressing the bond, the bond remains in force, and the original owner remains liable.
If the improvements are not complete or the bond is not formally replaced by the new owner, the original entity remains “on the hook” for the liability. To avoid complications, addressing the bond should be a priority before finalizing any property sale.
The Value of Surety Specialists
Navigating government requirements can be complex. Working with a specialized surety provider offers distinct advantages over a general insurance agent. Specialists understand the mechanics of automatic renewals and can explain the necessary closeout steps before you even issue the bond.
At Commercial Surety Bond Agency, we provide first-class service by helping you understand exactly what documentation you will need down the road. While we cannot control the speed of government agencies, our expert guidance ensures you are prepared to act quickly when your project is complete.
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