SubdivisionsImprovement Security

Section § 66499

Explanation

This law outlines options for security that developers must provide when they are required to ensure the completion of certain works or agreements, unless they are specific nonprofit corporations. Developers can choose from several options for security, such as bonds from authorized companies, deposits with government agencies or escrow agents, credit instruments from government or regulated financial institutions, liens on properties being developed, or any other form of security acceptable to the local agency. If security is provided via a lien or security interest on real property, it must be recorded, and a lien is created with priority equivalent to a judgment lien to ensure the improvements are completed. The local agency has the authority to release or adjust these liens as long as the security for the improvements is considered adequately covered.

(a)CA Government Code § 66499(a) Whenever this division or a local ordinance authorizes or requires the furnishing of security in connection with the performance of any act or agreement, if the developer is not a nonprofit corporation described in subdivision (c) of Section 66499.3, the security shall be one of the following at the option of and subject to the approval of the local agency and if the developer is a nonprofit corporation described in subdivision (c) of Section 66499.3, the security shall be one of the following, subject to the approval of the local agency:
(1)CA Government Code § 66499(a)(1) Bond or bonds by one or more duly authorized corporate sureties.
(2)CA Government Code § 66499(a)(2) A deposit, either with the local agency or a responsible escrow agent or trust company, at the option of the local agency, of money or negotiable bonds of the kind approved for securing deposits of public moneys.
(3)CA Government Code § 66499(a)(3) An instrument of credit from an agency of the state, federal, or local government when any agency of the state, federal, or local government provides at least 20 percent of the financing for the portion of the act or agreement requiring security, or from one or more financial institutions subject to regulation by the state or federal government and pledging that the funds necessary to carry out the act or agreement are on deposit and guaranteed for payment, or a letter of credit issued by such a financial institution.
(4)CA Government Code § 66499(a)(4) A lien upon the property to be divided, created by contract between the owner and the local agency, if the local agency finds that it would not be in the public interest to require the installation of the required improvement sooner than two years after the recordation of the map.
(5)CA Government Code § 66499(a)(5) Any form of security, including security interests in real property, which is acceptable to the local agency and specified by ordinance thereof.
(b)CA Government Code § 66499(b) Any contract or security interest in real property entered into as security for performance pursuant to paragraph (4) or paragraph (5) of subdivision (a) shall be recorded with the county recorder of the county in which the subject real property is located. From the time of recordation of the written contract or document creating a security interest, a lien shall attach to the real property particularly described therein and shall have the priority of a judgment lien in an amount necessary to complete the agreed to improvements. The recorded contract or security document shall be indexed in the Grantor Index to the names of all record owners of the real property as specified on the map and in the Grantee Index to the local agency approving the map.
The local agency may at any time release all or any portion of the property subject to any lien or security interest created by this subdivision or subordinate the lien or security interest to other liens or encumbrances if it determines that security for performance is sufficiently secured by a lien on other property or that the release or subordination of the lien will not jeopardize the completion of agreed upon improvements.
developer security requirements nonprofit corporation exceptions corporate surety bonds ...

Section § 66499.1

Explanation

This section explains that when a person or company (the 'principal') agrees to build or complete public improvements, they must provide a bond as a guarantee they will finish the work as agreed. The bond is backed by a corporate surety and ensures the project is completed properly according to the terms of the contract. If the principal fails to meet their obligations, the bond allows the county or city to claim the specified money to cover the costs of completing the work or address any issues.

The bond also covers additional expenses, such as reasonable attorney's fees, if the county or city has to take legal action to enforce it. This bond remains valid even if there are changes or delays in the project, and the surety accepts these changes without needing notification.

Except as provided in Section 66499.3, a bond or bonds by one or more duly authorized corporate sureties to secure the faithful performance of any agreement shall be in substantially the following form:
Whereas, The Board of Supervisors of the County of ____ (or the City Council of the City of ____), State of California, and ____ (hereinafter designated as “principal”) have entered into an agreement whereby principal agrees to install and complete certain designated public improvements, which said agreement, dated ____, 19_, and identified as project ____, is hereby referred to and made a part hereof; and
Whereas, Said principal is required under the terms of said agreement to furnish a bond for the faithful performance of said agreement.
Now, therefore, we, the principal and ____, as surety, are held and firmly bound unto the County of ____, (or City of ____) hereinafter called (“____”), in the penal sum of ____ dollars ($____) lawful money of the United States, for the payment of which sum well and truly to be made, we bind ourselves, our heirs, successors, executors and administrators, jointly and severally, firmly by these presents.
The condition of this obligation is such that if the above bounded principal, his or its heirs, executors, administrators, successors or assigns, shall in all things stand to and abide by, and well and truly keep and perform the covenants, conditions and provisions in the said agreement and any alteration thereof made as therein provided, on his or their part, to be kept and performed at the time and in the manner therein specified, and in all respects according to their true intent and meaning, and shall indemnify and save harmless ____, its officers, agents and employees, as therein stipulated, then this obligation shall become null and void; otherwise it shall be and remain in full force and effect.
As a part of the obligation secured hereby and in addition to the face amount specified therefor, there shall be included costs and reasonable expenses and fees, including reasonable attorney’s fees, incurred by county (or city) in successfully enforcing such obligation, all to be taxed as costs and included in any judgment rendered.
The surety hereby stipulates and agrees that no change, extension of time, alteration or addition to the terms of the agreement or to the work to be performed thereunder or the specifications accompanying the same shall in anywise affect its obligations on this bond, and it does hereby waive notice of any such change, extension of time, alteration or addition to the terms of the agreement or to the work or to the specifications.
In witness whereof, this instrument has been duly executed by the principal and surety above named, on ____, 19_.
Appropriate modifications shall be made in such form if the bond is being furnished for the performance of an act not provided for by agreement.
performance bond corporate surety public improvements ...

Section § 66499.2

Explanation

This law is about a bond required for certain public works projects to ensure that laborers and material suppliers are paid. Before starting a project, the main contractor must file a payment bond with a county or city. This bond holds the contractor and a corporate surety responsible for payments to anyone providing labor or materials for the project. The bond also covers costs and attorney fees if the county or city has to enforce it in court. If the work is completed and all obligations are met, the bond becomes void. Changes to the project don’t affect the bond’s enforceability, and the surety must still fulfill its obligations.

A bond or bonds by one or more duly authorized corporate sureties for the security of laborers and material suppliers shall be in substantially the following form:
Whereas, The Board of Supervisors of the County of ____ (or City Council of the City of ____), State of California, and ____ (hereinafter designated as “the principal”) have entered into an agreement whereby the principal agrees to install and complete certain designated public improvements, which agreement, dated ____, 20_, and identified as project ____, is hereby referred to and made a part hereof; and
Whereas, Under the terms of the agreement, the principal is required before entering upon the performance of the work, to file a good and sufficient payment bond with the County of ____ (or the City of ____) to secure the claims to which reference is made in Title 3 (commencing with Section 9000) of Part 6 of Division 4 of the Civil Code.
Now, therefore, the principal and the undersigned as corporate surety, are held firmly bound unto the County of ____ (or the City of ____) and all contractors, subcontractors, laborers, material suppliers, and other persons employed in the performance of the agreement and referred to in Title 3 (commencing with Section 9000) of Part 6 of Division 4 of the Civil Code in the sum of ____ dollars ($____), for materials furnished or labor thereon of any kind, or for amounts due under the Unemployment Insurance Act with respect to this work or labor, that the surety will pay the same in an amount not exceeding the amount hereinabove set forth, and also in case suit is brought upon this bond, will pay, in addition to the face amount thereof, costs and reasonable expenses and fees, including reasonable attorney’s fees, incurred by county (or city) in successfully enforcing this obligation, to be awarded and fixed by the court, and to be taxed as costs and to be included in the judgment therein rendered.
It is hereby expressly stipulated and agreed that this bond shall inure to the benefit of any and all persons, companies, and corporations entitled to file claims under Title 3 (commencing with Section 9000) of Part 6 of Division 4 of the Civil Code, so as to give a right of action to them or their assigns in any suit brought upon this bond.
Should the condition of this bond be fully performed, then this obligation shall become null and void, otherwise it shall be and remain in full force and effect.
The surety hereby stipulates and agrees that no change, extension of time, alteration, or addition to the terms of the agreement or the specifications accompanying the same shall in any manner affect its obligations on this bond, and it does hereby waive notice of any such change, extension, alteration, or addition.
In witness whereof, this instrument has been duly executed by the principal and surety above named, on ____, 20__.
payment bond public improvements laborers security ...

Section § 66499.3

Explanation

This law details financial security measures for guaranteeing the performance of construction or improvement projects. It requires setting aside funds to ensure the work is completed as agreed. Generally, the security must cover at least 50%, but not more than 100%, of the project's estimated costs. Additionally, it includes another security amount of the same range to ensure contractors get paid for labor and materials. Exceptions exist for California nonprofit corporations funded by government agencies, which can use letters of credit or bonds instead. They must ensure funds are managed correctly, such as depositing money in a secure account and making payments only after certifications of paid work and local government approval. The law also mandates a one-year warranty to cover defects after project completion. Nonprofits must follow detailed procedures for progress payments to contractors, ensuring transparency and accountability.

Security to guarantee the performance of any act or agreement shall be in the following amounts:
(a)CA Government Code § 66499.3(a) An amount determined by the legislative body, not less than 50 percent nor more than 100 percent of the total estimated cost of the improvement or of the act to be performed, conditioned upon the faithful performance of the act or agreement; and
(b)CA Government Code § 66499.3(b) An additional amount determined by the legislative body, not less than 50 percent nor more than 100 percent of the total estimated cost of the improvement or the performance of the required act, securing payment to the contractor, to the subcontractors, and to persons furnishing labor, materials, or equipment to them for the improvement or the performance of the required act.
(c)CA Government Code § 66499.3(c) Whenever an entity required to furnish security in accordance with subdivisions (a) and (b) is a California nonprofit corporation, funded by the United States of America or one of its agencies, or funded by this state or one of its agencies, the entity shall not be required to comply with subdivisions (a) and (b), if the following conditions are met:
(1)CA Government Code § 66499.3(c)(1) A letter or letters of credit are provided pursuant to paragraph (3) of subdivision (a) of Section 66499 for 100 percent of the contract of improvements or the contractor installing the improvements has bonded to the nonprofit corporation and the local agency as coobligee the amount of 100 percent of the contract for the faithful performance of the work, and has further bonded to the nonprofit corporation and the local agency as coobligee an amount of not less than 50 percent of the contract for the payment of labor and materials, and those bonds comply with the provisions of this chapter.
(2)CA Government Code § 66499.3(c)(2) All moneys under the control of the nonprofit corporation and payable to the contractor by the nonprofit corporation are deposited in a depository complying with the provisions of this chapter, and out of which moneys progress payments are conditioned upon:
(A)CA Government Code § 66499.3(c)(2)(A) The contractor’s certification to the nonprofit corporation that all labor performed in the work, and all materials furnished to and installed in the work, have been paid for in full to the date of the certification.
(B)CA Government Code § 66499.3(c)(2)(B) The written approval of the nonprofit corporation.
(C)CA Government Code § 66499.3(c)(2)(C) Review and approval of progress payment billings by local government.
(D)CA Government Code § 66499.3(c)(2)(D) Final payment to the contractor not being made until 30 days shall have expired after the filing and recording of the notice of completion of the work and acceptance of the work by, and a waiver of lien rights provided by the contractor to, the local agency in writing.
(3)CA Government Code § 66499.3(c)(3) All certifications as to progress payments shall be delivered through the United States mail to the nonprofit corporation. The term “progress payments” means payments made in compliance with the schedule of partial payments agreed upon in the contract for the work. No less than 10 percent of the total contract price shall be retained for the 60 days following the filing of the notice of completion.
(d)CA Government Code § 66499.3(d) Subject to the limitations of Section 66499.9, an amount determined by the legislative body necessary for the guarantee and warranty of the work for a period of one year following the completion and acceptance thereof against any defective work or labor done, or defective materials furnished.
construction security performance guarantee improvement projects ...

Section § 66499.4

Explanation

This law states that if a local agency has to enforce an obligation guaranteed by a security, they can also recover additional costs, reasonable expenses, and attorney fees beyond just the main amount of that security.

As a part of the obligation guaranteed by the security and in addition to the face amount of the security, there shall be included costs and reasonable expenses and fees, including reasonable attorneys’ fees, incurred by the local agency in successfully enforcing the obligation secured.
obligation enforcement security costs reasonable expenses ...

Section § 66499.5

Explanation

This law allows a local agency to reduce the security deposit required from a subdivider if a contractor provides certain bonds. These bonds ensure the contractor will complete the work and pay for labor and materials, which are necessary when financing subdivision improvements through special assessments.

If the required subdivision improvements are financed and installed pursuant to special assessment proceedings, the local agency at its option may provide by local ordinance that, upon the furnishing by the contractor of the faithful performance and labor and material bonds required by the special assessment act being used, the improvement security of the subdivider may be reduced by an amount corresponding to the amount of such bonds so furnished by the contractor.
subdivision improvements special assessment proceedings local ordinance ...

Section § 66499.6

Explanation

This law states that any money, bonds, or credit instruments set aside to guarantee a specific performance must be treated as a trust fund. Creditors of the person who deposited these funds cannot enforce a money judgment against them until the agreed obligations are fulfilled and the local agency is satisfied.

Such money, negotiable bond or instrument of credit shall be a trust fund to guarantee performance and shall not be subject to enforcement of a money judgment by any creditors of the depositor until the obligation secured thereby is performed to the satisfaction of the local agency.
trust fund guarantee performance negotiable bond ...

Section § 66499.7

Explanation

This law outlines how the security provided by a developer (or subdivider) is released as the work progresses or upon completion. Essentially, it explains that security—like a surety bond or letter of credit—can be partially or fully released once the necessary work is completed and approved by the local agency. If developers notify the agency that the work is done, the agency has 45 days to review and decide if the work meets the required standards. If the work isn't done, the agency provides a list of what still needs to be completed. After the final improvements are done and accepted, any remaining security is released, minus any amounts retained for guarantees or warranties.

The security furnished by the subdivider shall be released in whole or in part in the following manner:
(a)CA Government Code § 66499.7(a) Security given for faithful performance of any act or agreement shall be released upon the performance of the act or final completion and acceptance of the required work. The legislative body may provide for the partial release of the security upon the partial performance of the act or the acceptance of the work as it progresses, consistent with the provisions of this section. The security may be a surety bond, a cash deposit, a letter of credit, escrow account, or other form of performance guarantee required as security by the legislative body that meets the requirements as acceptable security pursuant to law. If the security furnished by the subdivider is a documentary evidence of security such as a surety bond or a letter of credit, the legislative body shall release the documentary evidence and return the original to the issuer upon performance of the act or final completion and acceptance of the required work. In the event that the legislative body is unable to return the original documentary evidence to the issuer, the security shall be released by written notice sent by certified mail to the subdivider and issuer of the documentary evidence within 30 days of the acceptance of the work. The written notice shall contain a statement that the work for which the security was furnished has been performed or completed and accepted by the legislative body, a description of the project subject to the documentary evidence and the notarized signature of the authorized representative of the legislative body.
(b)CA Government Code § 66499.7(b) At the time that the subdivider believes that the obligation to perform the work for which security was required is complete, the subdivider may notify the local agency in writing of the completed work, including a list of work completed. Upon receipt of the written notice, the local agency shall have 45 days to review and comment or approve the completion of the required work. If the local agency does not agree that all work has been completed in accordance with the plans and specifications for the improvements, it shall supply a list of all remaining work to be completed.
(c)CA Government Code § 66499.7(c) Within 45 days of receipt of the list of remaining work from the local agency, the subdivider may then provide cost estimates for all remaining work for review and approval by the local agency. Upon receipt of the cost estimates, the local agency shall then have 45 days to review, comment, and approve, modify, or disapprove those cost estimates. No local agency shall be required to engage in this process of partial release more than once between the start of work and completion and acceptance of all work; however, nothing in this section prohibits a local agency from allowing for a partial release as it otherwise deems appropriate.
(d)CA Government Code § 66499.7(d) If the local agency approves the cost estimate, the local agency shall release all performance security except for security in an amount up to 200 percent of the cost estimate of the remaining work. The process allowing for a partial release of performance security shall occur when the cost estimate of the remaining work does not exceed 20 percent of the total original performance security unless the local agency allows for a release at an earlier time. Substitute bonds or other security may be used as a replacement for the performance security, subject to the approval of the local agency. If substitute bonds or other security is used as a replacement for the performance security released, the release shall not be effective unless and until the local agency receives and approves that form of replacement security. A reduction in the performance security, authorized under this section, is not, and shall not be deemed to be, an acceptance by the local agency of the completed improvements, and the risk of loss or damage to the improvements and the obligation to maintain the improvements shall remain the sole responsibility of the subdivider until all required public improvements have been accepted by the local agency and all other required improvements have been fully completed in accordance with the plans and specifications for the improvements.
(e)CA Government Code § 66499.7(e) The subdivider shall complete the works of improvement until all remaining items are accepted by the local agency.
(f)CA Government Code § 66499.7(f) Upon the completion of the improvements, the subdivider, or his or her assigns, shall be notified in writing by the local agency within 45 days.
(g)CA Government Code § 66499.7(g) Within 45 days of the issuance of the notification by the local agency, the release of any remaining performance security shall be placed upon the agenda of the legislative body of the local agency for approval of the release of any remaining performance security. If the local agency delegates authority for the release of performance security to a public official or other employee, any remaining performance security shall be released within 60 days of the issuance of the written statement of completion.
(h)CA Government Code § 66499.7(h) Security securing the payment to the contractor, his or her subcontractors, and to persons furnishing labor, materials, or equipment shall, after passage of the time within which claims of lien are required to be recorded pursuant to Article 2 (commencing with Section 8410) of Chapter 4 of Title 2 of Part 6 of Division 4 of the Civil Code and after acceptance of the work, be reduced to an amount equal to the total claimed by all claimants for whom claims of lien have been recorded and notice thereof given in writing to the legislative body, and if no claims have been recorded, the security shall be released in full.
(i)CA Government Code § 66499.7(i) The release shall not apply to any required guarantee and warranty period required by Section 66499.9 for the guarantee or warranty nor to the amount of the security deemed necessary by the local agency for the guarantee and warranty period nor to costs and reasonable expenses and fees, including reasonable attorney’s fees.
(j)CA Government Code § 66499.7(j) The legislative body may authorize any of its public officers or employees to authorize release or reduction of the security in accordance with the conditions hereinabove set forth and in accordance with any rules that it may prescribe.
subdividers security release performance security ...

Section § 66499.8

Explanation

This law explains that when a project or obligation requires approval from an agency other than the local one holding a security deposit, the local agency cannot release the security until the other agency approves the work. The other agency has two months after the work is completed to express their approval or disapproval. If they don't respond within two months, it's automatically assumed that they are satisfied with the work.

In all cases where the performance of the obligation for which the security is required is subject to the approval of another agency, the local agency shall not release the security until the obligation is performed to the satisfaction of such other agency. Such agency shall have two months after completion of the performance of the obligation to register its satisfaction or dissatisfaction. If at the end of that period it has not registered its satisfaction or dissatisfaction, it shall be conclusively deemed that the performance of the obligation was done to its satisfaction.
agency approval security release performance obligation ...

Section § 66499.9

Explanation

This law explains that any security or guarantee provided for completing a task or agreement is limited to a few specific responsibilities. First, it covers the actual work specified in the agreement between the developer and the government body. Second, it includes any modifications to the work, as long as these changes don't cost more than 10% extra. Third, it ensures the work is free from defects for up to one year after it’s finished. Finally, it includes covering costs and reasonable legal fees.

Any liability upon the security given for the faithful performance of any act or agreement shall be limited to:
(a)CA Government Code § 66499.9(a) The performance of the work covered by the agreement between the subdivider and the legislative body or the performance of the required act.
(b)CA Government Code § 66499.9(b) The performance of any changes or alterations in such work; provided, that all such changes or alterations do not exceed 10 percent of the original estimated cost of the improvement.
(c)CA Government Code § 66499.9(c) The guarantee and warranty of the work, for a period of one year following completion and acceptance thereof, against any defective work or labor done or defective materials furnished, in the performance of the agreement with the legislative body or the performance of the act.
(d)CA Government Code § 66499.9(d) Costs and reasonable expenses and fees, including reasonable attorneys’ fees.
security limitation faithful performance agreement performance ...

Section § 66499.10

Explanation

This law explains what to do when a contractor or supplier doesn't get paid for their work or materials. If a deposit of money or bonds was given as security, you can sue the person holding that deposit to get paid. If a surety bond was provided, then you can take legal action against the surety (the person or company who guaranteed the payment). If credit was provided as security, the lawsuit should be against the financial institution involved.

Where the security is conditioned upon the payment to the contractor, his subcontractors and to persons furnishing labor, materials or equipment to them for the improvement of the performance of an act and takes the form of a deposit of money or negotiable bonds, a suit to recover the amount due the claimant may be maintained against the holder of such deposit. Where the security takes the form of a surety bond, or surety bonds, the right of recovery shall be in a suit against the surety. Where the security takes the form of an instrument of credit, the cause of action shall be against the financial institution obligating itself on such instrument of credit.
contractor payment subcontractors labor payment ...