Site Development Bonds

What are site development bonds?

Site Development Bonds (often called Subdivision Bonds) are a three party guarantee often required by Municipalities when an Owner or Developer wants to improve a piece of property. These improvements usually include items such as streets, curbs, sewers, utilities and landscaping. The Municipality wants to make sure that regardless of if the properties sell or not, the Owner/Developer will still complete these improvements. The surety bond typically guarantees that the Owner/Developer of land will be able to complete the improvements, pay for contractors and material suppliers and warranty the improvements against defects for a certain period of time. This period is often two years or more. These surety bonds can also be called Developer Bonds, Plat Bonds, Completion Bonds or even Performance Bonds depending on the Municipality. The Owner or Developer is the Principal, The Municipality is the Obligee and the Bond Company is the Surety.

How are these bonds different from a performance bond?

In a typical performance bond, the Principal on a bond and their Surety are protected from non-payment of the Obligee. If the Obligee does not pay, work can stop without a surety bond claim. However, for Site Improvement Bonds, the Owner/Developer is financing the project and guaranteeing that the improvements will be made. The improvements must be completed regardless of the Owner/Developers’ ability to pay. This is the reason they can be referred to as Completion Bonds. For example, let’s say that a Developer is unable to sell the land plots and collect money to complete the improvements. That does not alleviate the surety bond company from having to perform.