Subdivision and Site Improvement Bonds Overview

What is a Subdivision/Improvement Bond?

Subdivision bonds, or site improvement bonds, are a requirement set by cities, counties, or other governmental and public agencies for property owners or developers who intend to file a lot map or obtain a building permit. Unlike performance and payment bonds, which protect either project owners or subcontractors working on the project, subdivision bonds guarantee that the project owner will finance and complete mandatory public improvements at no expense to the government body that has jurisdiction (municipality, county, etc.).

How Subdivision Surety Bonds Work

Subdivision bonds and improvement bonds provide a few different types of protection to municipalities:

Guarantee of Completion

Subdivision bonds ensure that the required public improvements (such as streets, sidewalks, utilities, and landscaping) are completed according to the municipality's standards and within a specified timeframe. This bond protects municipalities from being left with incomplete or substandard infrastructure.

Financial Security

If a developer fails to complete the improvements, the municipality can claim the bond to secure the necessary funds to finish the work. This bond ensures that the city does not have to use its budget or resources to complete the project.

Payment to Contractors

A payment bond is sometimes required as part of the subdivision or improvement bonds. These particular bonds will guarantee payment to the contractors, subcontractors, or material suppliers working on the project that they will be paid.

Subdivision Bond Application Requirements

To apply for subdivision and improvement bonds, you will generally need:

Bond Application

Credit check

Project scope

Engineer’s estimates

Confirmation of funding source(s) to complete the work

Company and personal financial statements

Applicable partnerships, trusts, or operating agreements

Subdivision Agreements with the municipality

Bond forms

Where California Developers Acquire Subdivision Bonds

There are two places where developers can go for their surety needs:

An Insurance Agent

An insurance agent may be able to issue subdivision bonds. However, they often lack the professional experience and industry connections with surety providers to offer all of the options available and make the process as smooth as possible.

A Surety Specialist

A surety agent has dedicated their professional life to surety bonds and helping California property owners and developers get the bonds they need. Due to this focus, they've been able to form relationships with numerous surety companies, they have access to special programs, and they are well versed in the complexities of getting a subdivision bond in place.

CSBA is a company of surety specialists and experts, having dedicated ourselves to surety bonds since 1984. With our team of over 225 years of combined surety experience, we are well-equipped to guide you through the bonding process.

FAQs

Municipalities or local government agencies typically require subdivision bonds as a condition for approving a subdivision project. These bonds ensure that the property owner or developer satisfactorily completes the public improvements within the development.

Subdivision bonds protect municipalities from financial risk by ensuring developers complete required public improvements. They also assure the public that infrastructure within new developments will meet established standards.

  1. The bond amount, often called the penal sum, is typically based on the estimated cost of the public improvements. Are there different types of subdivision bonds?
  2. Performance Bonds: Guarantee the completion of the improvements according to the terms of the contract.
  3. Maintenance Bonds: Ensure that the completed improvements remain in good condition for a specified period after completion.
  4. Payment Bonds: Guarantee that the property owner or developer pays the contractors and suppliers for their work and materials.

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