Category: Construction Law Section

A Brief Primer On Subdivision Development Bonds

 

Construction Law Section

By Luke J. Farley

Payment and performance bonds get all our attention. But there is another type of construction bond you might encounter, especially if the housing market in North Carolina stays hot[1]—the so-called “subdivision development bond.”[2] Both cities and counties can provide for “more orderly development of subdivisions by requiring the construction of community service facilities” like roads, sidewalks, utilities, etc.[3] To ensure that the infrastructure improvements are completed, local governments can require “performance guarantees” from developers.[4] All performance guarantees must meet the same basic requirements.[5] The purpose of a performance guarantee is to prevent a situation where a developer begins work on a subdivision, builds some houses, and then runs out of money without completing the infrastructure, leaving residents in a half-built community without roads, sidewalks, sewer, etc. Unfortunately, incomplete subdivisions were a common problem during the last economic downturn.[6]

Performance guarantees usually take the form of surety bonds, though the developer also has the option of getting a letter of credit[7] or some other equivalent security.[8] According to the International Risk Management Institute, a bond is the preferred option because it does not require any security[9] (though the developer or its principals should still expect to sign an indemnity agreement). Other performance guarantees, like a letter of credit or certificate of deposit, would either tie up the developer’s capital or put it directly at risk as collateral.[10]

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Recommended Reading: On the State Tax Code, Clarity Combined With New Gray Area

Construction Law Section

This year, North Carolina made many changes to the Tax Code which have raised many questions coming from the construction industry. Certain construction projects, if not considered capital improvements under the Tax Code’s definitions, require that the contractors collect taxes on projects. Even if no taxes are to be collected on the projects, contractors need to understand the affidavits that they should request, or that will be requested of them. Brett Becker and John Mabe offer an explainer on the new tax in a post on the NexsenPruet Insights site.

 

 

 

The Chair’s Column: Construction Law Section, This Blog’s For You

By M. Riana Smith

Happy 2017! While it is the new year for everyone else, this time of year marks the half-way point of our bar year, which provides a great opportunity to see what we have accomplished so far, what is new and what is upcoming. Let’s start with what’s new. I am excited to introduce you to the section’s new blog format.

Rather than receiving our newsletter approximately every four months, you will receive more frequent posts on items of interest and affecting our section members – typically on a monthly basis. The motivation behind this change is to provide the members more timely access to important information instead of waiting until we have enough articles for the Change Order or until the next deadline. Expect to still receive the same great articles from section authors that you always have, but also look forward to blogs on other areas of law that may affect your practice, as well as legislative and case law updates. Changing the format has been in the works for some time. I want to thank the Newsletter Committee: Jonathan Massell, Lindsey Powell, Gib Laite and Todd Jones for their hard work that led to the successful launch of our new blog format. If you have ideas for a blog, an article (perhaps broken into a series of blog posts), or see another blog that should be re-blogged, please email our co-chairs (listed above) so they can make plans to include in future posts. Also, we welcome your feedback on this new format – good, bad (aka kindly constructive), or in-between, so we can continue to improve and better serve the section.

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