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Thread: Maintenance bonds

  1. #1
    Member
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    May 2005
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    Dallas/Fort Worth, Texas
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    Maintenance bonds

    I'm a new planner who has been asked to review our maintenance bond requirements for the Planning & Zoning Commission. We require two-year maintenance bonds and are considering extending the time period. We donít want to create an unfair burden on developers by extending this time period, but on the other hand, we want to make sure our requirements are adequate. Two years appears to be common for this region (Dallas/Fort Worth), but I don't know if that's because two years is reasonable and adequate or because one or two cities picked the two-year time frame and everyone else copied that requirement.

    If your city requires maintenance bonds through its subdivision regulations, for what time period do you require them? What has your experience been? Is two years adequate? If not, would extending the time period to, say, three years or five years be too onerous?

  2. #2
    Cyburbian Emeritus Chet's avatar
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    Aug 2001
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    South Milwaukee
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    When does the 2 year period start? Some places have it upon completion of improvements, but what is more common in these parts is 2 years from the date that the development is at 80% build-out of homes. Given the housing market, the later is preferrable.

  3. #3
    Member
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    Dallas/Fort Worth, Texas
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    Our ordinance says "prior to acceptance by the city of any improvements." I'm not sure at what point we accept improvements, but the 80% guideline sounds like would address the P & Z Commission's concerns. Thank you for the suggestion.

  4. #4
    Cyburbian
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    Jun 2007
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    Colorado
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    We call the "maintenance bond" a warranty period and it is for two years. It starts counting from the day that it is accept for use and the original collateral is released back to the applicant. Fifteen percent of that collateral is withheld as warranty. We have not had any problems with the two-year timeframe. If something is going to go wrong, it usually does within that period.

  5. #5
    Cyburbian
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    Apr 2009
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    Georgia
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    From experience some financial institutions will not issue a bond for more than 2 years. With that said a couple years ago we revisited our bond and bond process and identified a list of financial institutions in our state that we would accept bonds from and convienently they would bond improvements for more than 2 years (their policy). We now require a bond from one of those financial institutions for 5 years. Yes, the developer is responsible for maintenance for the first 5 years of a residential subdvision's life as bonds are non-transferrable. The bond starts the day the final plat is recorded and expires 60 months later.

    The thing to remember is to have a tickler on your calendar to have the subdivision inspected a couple months prior to the bond expiration so that all failures and deficiencies are identified and the developer (usually by now a defunct LLC, a problem within itself) has the opportunity to make the repairs. If you don't have a paper trail of trying to get the repairs made it is nearly impossible to cash out a bond.

    The reason we identified a list of financial institutes within the state that we will only accept bonds from is because we had several subdivisions in which the same developer (different LLC's) filed bankruptcy and would not make the necessary repairs and the out-of-state bonding company would not uphold their bonds (several million dollars worth). Because they are out-of-state our legal options are limited and very expensive, thus the Board of Commissioners decided not to seek legal action.

  6. #6
    Cyburbian Cloverhill's avatar
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    Aug 2009
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    Northern VA, USA
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    41

    Bond timeframe

    We let the developer pick: 1, 2, or 3 years and they can apply for extensions and reductions.

  7. #7
    Cyburbian Emeritus Chet's avatar
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    Aug 2001
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    South Milwaukee
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    Based on Shell Waster's comments I should clarify. Everywhere I've worked we've always required an Irrevocable Letter of Credit, not a performance bond. The banks squeal, the developer thinks it's a "line of credit" they can draw to pay thier contractors, but in reality the developer needs to provide lien waivers from the contractors to get the Letter $ amount reduced, and 20% is held for the warranty period.

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