DEVELOPERS BONDS, SITE IMPROVEMENTS
and SUBDIVISION BONDS
DEVELOPERS BONDS also known as Subdivision Bonds, Site Improvement Bonds or Subdivision Improvement Bonds provide protection to local government entities guaranteeing that the developer will complete improvements which become part of the public domain once the development is completed. Examples of these improvements are gutters, sidewalks, curbs, lighting and in some cases water treatment facilities. In most cases, the key difference between subdivision bonds from regular contract performance bonds is that the developer must pay the cost of building the bonded improvements rather than having the improvements funded by taxpayer dollars or private funding.
Typically, local government entities often prefer Cash or Irrevocable Letters of Credit (ILOC) in lieu of a Developer’s Bonds. Most often developers do not realize that there are statutes and ordinances (depends on your jurisdiction) allowing for bonds to be used in lieu of more liquid alternatives, i.e. Cash and ILOC alternative methods. The decision to post a developer’s bond(s) in lieu of the other accepted more liquid guarantees often has many benefits to the developer. For example, Subdivision bonds are considered an ‘off-balance sheet security’ meaning they do not encumber the developer’s balance sheet. Use of bonds also allows the developer to access cash that otherwise wouldn’t be available to satisfy the cash-flow requirements of the development project. Also, use of bonds on any particular development project will typically give the developer access to additional bank financing that can be used to grow the company’s business and improve its liquidity.
A competent broker and surety company are essential to help explain to the municipality why a bond is a logical choice as a form of security. AllStates Bonding has often been able to work with its clients to convince governmental agencies to accept Developers Bonds in lieu of using more liquid type assets to guarantee the subdivision improvements required as per terms of their Developers Agreement. The knowledgeable professionals at AllStates Bonding are happy to discuss the many many benefits available to you (the developer) by using surety bonds in lieu of more liquid assets to meet the requirements of your developers agreement as well as work with you to convince your municipal entity(ies) that a Developers Bond from you is a viable substitute to your posting more liquid-type assets to secure the improvements of your development project.