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Subdivision Bonds

What is a Subdivision Bond?

subdivision bond

A Subdivision Bond is a type of Contract Performance Bond that some state governments and municipalities require of land owners to make improvements to land within a subdivision, such as improving electrical lines, sewer, sidewalks, gutters, grading, etc.

The Subdivision Bond covers every aspect of construction, guaranteeing that the required improvements are completed in the properly, and in a timely fashion.

There are three parties involved in a Subdivision Bond.

  • The principal is the contractor who purchases the surety bond to guarantee financial ability.
  • The obligee is the public agency who requires the bond.
  • The surety is an underwriter who issues the Subdivision Bond.

Subdivision Bonds are also known as:

  • Developer Bonds
  • Land Improvement Bonds
  • Site Improvement Bonds
  • Plat Bonds
  • Completion Bonds
  • Performance Bonds

One major difference between Subdivision Bonds and traditional Performance Bonds is that the the principal of the Subdivision Bond must pay the cost of building the bonded improvements rather than the obligee, no matter who the principal is. Traditionally, the owner or developer will secure the bond for construction. However, if a contractor agrees to secure/post the Subdivision Bonds on behalf of the owner, then the contractor will be obligated to complete the improvements and pay all the bills whether or not the owner pays the contractor.

When Do I Need a Subdivision Bond?

Most local government agencies require a Subdivision Bond before allowing contractors to start work on a subdivision development project.

Why Do I Need a Subdivision Bond?

Subdivisions are a growing construction segment, and because of that, government agencies require bonds on subdivisions to ensure that project expectations are met. The Subdivision Bond holds contractors accountable to build and/or renovate important public systems to meet local specifications, including sidewalks, electrical lines, and sewage systems.

Benefits for the Obligees:

  1. In the event that the contractor fails to complete the subdivision project, the surety will provide the harmed parties with money to complete the project. The surety then requires the principal to reimburse them for all money paid out.
  2. Subdivision Bonds allow the developers to file plats with the county or city before completing construction of the development.

How Much Are Subdivision Bonds Written for?

The amount of the Subdivision Bond is calculated based on the estimate of the project costs.

How Much Do Subdivision Bonds Cost?

The cost of your Subdivision Bond will be based on:

  • The contract size and terms
  • The dollar amount of the bond requested
  • The work record of the principal contractor
  • The credit score of the principal contractor
  • Other financial qualifiers from the principal contractor

The premium will usually be around 3% of the bond amount. To find out how much your Subdivision Bond will cost, contact Viking Bond Service to request a quote today.

What Do You Need to Secure a Subdivision Bond?

Typically, Subdivision Bonds require:

  • A background and financial information check
  • Verification of the developer's capacity, experience, finances, and character
  • Credit check
  • Bond application
  • Scope of the project information
  • Costs of the project
  • Source of funding

For certain projects you may need to produce:

  • Three year end financial reports
  • Personal financial statements for each owner
  • Key people information
  • Project completion history
  • Banking relationships
  • Business plans
  • Any applicable partnership, trust, or operating agreements.

A Viking agent will let you know exactly what is needed to get your specific Subdivision Bond quoted and processed.

Get Your Bond Fast

Subdivision Bonds are complex, and require a thorough application process. However, we at Viking Bond are on your side to help you process your bond as quickly as possible, sometimes within just a few days. Contact Viking Bonds to get your Subdivision Bond process started.

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