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An Overview

When Land Development requires a surety for a project, the developer/builder has the option of providing a Letter of Credit, a Surety Bond, or a Cash Deposit.  In the event of developer/builder failure, each of these surety types provides the City of Charlotte with a resource to contribute to the completion of the project in accordance with Subdivision ordinance.  However, the surety types differ in their purpose and application.

Letter of Credit

Description: Developers/Builders obtain Letters of Credit from banks where they have established lines of credit/open loans.

Protection Afforded: A letter of credit serves as a financial resource for the completion of improvements by the City of Charlotte in the event of Developer/Builder default.

Term: Letters of Credit are generally effective for a maximum term of from two years, with the expiry date clearly indicated on the document. The City of Charlotte requires all new and renewal letter(s) of credit for developer, sidewalk, right-of-way, and BMP bonds to contain the "Evergreen Clause."  The "Evergreen Clause" specifically states the expiration of a letter of credit will not take place without a sixty-day notice by the issuer (the bank) to the City of Charlotte.  If prior notice of expiration is not given by the issuer (the bank), the letter of credit is automatically extended for another year. 

Surety Bond

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: 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.

Cash Sureties

Description: A certified check or money order made payable to, and deposited in the account of, the City of Charlotte.

Protection Afforded: A cash surety serves as a financial resource for the completion of improvements by the City of Charlotte in the event of Developer/Builder default.

Term: A Cash Deposit provides protection until the City of Charlotte returns the funds to the developer/builder.