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 minimum 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 one year. If you have any questions regarding this or any other bond issue, please do not hesitate to contact Bond Administration at (704) 336-4257.
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).
The Surety investigates the financial history and past performance of the Principal before underwriting a surety bond. The Surety evaluates the Principal's "Four "C's" - Character, Continuity, Capital and Capacity. This is accomplished with a thorough review of references, experience, ability, financial strength, credit history, established relationships and lines of credit.
Establishing an initial relationship with a Surety requires an investment of time and effort on the part of the Principal - the Surety must be satisfied that the developer is a well-managed, profitable enterprise that keeps promises, deals fairly and performs obligations in a timely manner.
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 generally specify a term of one to two years within which the required improvements will be completed. The City of Charlotte requires a "continuation" or "verification" certificate to be provided by the Surety 30 days prior to the end of the last verified term of the bond. The continuation certificate amends the original document to reflect the extension of the effective date of coverage shown on the original bond for a period of no less than one full year.
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. No renewal or policy terms are required.