Developer Bond
Replace Letters of Credit with Surety Bonds
A Developer Bond is security instrument that enables developers to replace Letter of Credit commitments with a Surety Bond. This is an excellent mechanism for established developers to free up capital that have significant value tied up in LOCs provided to municipalities for site servicing guarantees. When replacing Letters of Credit with these Developer / Subdivision Bonds, you can utilize otherwise idle capital for further development pursuits.
What is a Developer Bond / Subdivision Bond?
A Developer Bond, sometimes called a Subdivision Bond, is an alternative form of security that can be utilized by developers to replace development financial obligations to municipalities. This type of Surety Bond replaces the traditional security, typically in the form of a Letter of Credit (LOC), to ensure site servicing & public utilities are developed in accordance with the specified municipalities requirements.
Bond wordings can be provided in a standardized format or can be customized to fit the needs of the municipality requesting the security.
Why do I need a Developer Bond?
Developer Bonds are utilized and needed when a municipality requests a Letter of Credit or other security for guaranteeing site servicing and public utlities work when a development is being constructed. The bond will guarantee all obligations that are secured by a letter of credit, which typically consists of:
- Satisfactory construction of the works.
- Payment of any amounts payable to the City under the Subdivision Agreement.
- Payment of costs in connection with liens registered against the project.
- Performance of all works during the maintenance period and any rectification periods until a Certificate of Acceptance is issued by the City.
- Keeping in force of adequate insurance throughout the project, including the maintenance & rectification periods.
Ultimately, the guarantee provided by a Developer Bond is equivalent to an LOC and favorable for both the developer as well as the municipality requiring the security. We’ll outline the benefits below…
What are the Benefits of Utilizing Developer Bonds?
The benefits of the utilization of Developer Bonds are as follows:
For Developers
- Off Balance Sheet security increasing working capital significantly, especially in the latter stages of a development.
- A Letter of Credit is typically fully collateralized by cash; a bond is not. Again, a benefit to a developers working capital position.
- Greater liquidity for otherwise idle cash.
For Municipalities
- A reputable Surety Company prequalifies developers, providing assurance to the City that said developer is qualified to successfully complete the development.
- The Developer is strongly motivated to perform the development obligations due to the personal & corporate indemnity provided to the Surety.
- It positions the municipality as business-friendly and innovative as there are different security options provided to developers.
- Reduced administration for the municipality as developers are not aggressively petitioning to reduce LOC amounts to free up working capital.
What Regions are Accepting Developer / Subdivision Bonds?
The jurisdictions Developer Bonds are available for use in are constantly evolving; however, here’s a list updated in Nov. 2022:
Canada
- City of Surrey (BC)
- City of Coquitlam (BC)
- City of Burnaby (BC)
- City of Abbotsford (BC)
- City of Kelowna (BC)
- City of Calgary (AB)
- Country of Lethbridge (AB)
- City of Edmonton (AB)
- City of Airdrie (AB)
- City of Sudbury (ON)
- City of Pickering (ON)
- Various Cities in NFLD
United States
- Subdivision Bonds are widely used throughout the United States as an effective alternative to letters of credit.
Start with us to see if the municipality where your development is occuring can accept Developer Bonds.
How much does a Developer Bond Cost?
The cost of providing a Developer bond will depend on various aspects of a specific development business as well as the project in question. In general it is important to allocate 1% to 2% of the guaranteed amount that would typically be required when using an LOC. Some of the Underwriting information that will affect cost includes:
- Financial position of the developer
- Size of the project
- History and reputation of the developer
- Duration of the construction
- Site servicing specifics
- Development Agreement specifics
- Other contract specific details
Reliable Canadian Underwriters
Capability for US Guarantees as well
Unique Underwriting Solutions
Best Price Nation Wide
Online Bond Application
E-Bonds When Possible
How Subdivision Bonds Free Up Capital for Developers
In the property, real estate, and subdivision development industries, capital plays a vital role in driving progress and growth. However, developers often find themselves burdened
New To Bonding? An Introduction to Surety
Basics of Surety Bonds in Canada Surety bonds play a crucial role in the Canadian economy by providing a guarantee for the performance of specific
