Description: A surety bond is an agreement under which one party, the surety (the surety company), guarantees to another party, the owner or obligee (the City of Charlotte), that a third party, the principal (the developer or builder), will perform a contract (the subdivision plat application) in accordance with the terms and conditions of the contract agreement.
There are several types of surety bonds; the type required by the Land Development Division is a "performance bond," which protects the City of Charlotte from financial loss should the principal fail to perform the contract (complete the required public improvements).
Surety bonds are distinctly different from insurance products. Since surety bonds guarantee a principal's performance, the surety fully expects that the principal will honor their obligations. The principal signs an indemnity agreement with the surety that obligates the named indemnitors to protect the surety from any loss or expense in the event of a claim against the bond.
Protection afforded: A surety bond may provide financial and/or project management resources for the City of Charlotte. In the event of principal default, the surety may do the following:
- Finance completion by the existing developer;
- Assume responsibility and complete the project using developers of its choosing; or
- Pay the obligee (the City of Charlotte) the amount required to complete the project. Payment to the obligee will never exceed the "penal sum" (face amount) of the bond; therefore, an accurate bond estimate is critical to ensure project completion in the event of principal default.
Term: Surety bonds are guaranteed continuous until all required work is completed.