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Public Act 12-182: Completing The Improvements To Our Performance Bond Law

June 19, 2012

We’re reporting on the recently enacted Public Act 12-182.  The Act completes improvements to Connecticut’s performance bond law concerning site plans and subdivisions, started by the General Assembly with Public Act 11-79.  Public Act 11-79 generated a great deal of confusion.  Public Act 12-182 resolves this uncertainty.

Public Act 11-79, effective October 1, 2011, made several significant changes in how developers and builders post performance bonds with municipalities to ensure the proper and timely construction of infrastructure and key amenities in site plan approvals, and public improvements (roads, infrastructure and erosion controls, etc.) in subdivisions.  Public Act 11-79 contained several straightforward improvements to the process of calculating, posting and releasing performance bonds.  However, it also contained language about the obligation of towns to accept performance bonds that needed clarification.

In response to Public Act 11-79, we convened an informal meeting of town planners, town attorneys, and builders to discuss the situation.  This meeting occurred in August of 2011.  From this meeting, we provided a set of minutes, available at http://www.shipmangoodwin.com/files/upload/Minutes082311.pdf.  The meeting confirmed that many municipalities objected to Public Act 11-79’s mandate that commissions accept surety bonds, and the Act’s prohibition of long-term bonds for the maintenance of public improvements after acceptance by a town.  There was also confusion as to defining the various types of performance bonds.

The stakeholders who attended this meeting discussed a number of possible “fixes” to unresolved issues raised by Public Act 11-79.  These proposals formed the basis for Public Act 12-182.

Public Act 12-182 is effective October 1, 2012, and makes the following clarifications to the existing law:

Financial guarantees.  All performance bonds are referred to as “financial guarantees.”  This includes surety bonds, letters of credit, cash bonds, passbook and statement savings accounts.  This creates a uniform term for the myriad of performance bond types. 

Surety bonds.  The new Act eliminates the requirement that a commission has to accept a surety bond if offered by a developer.  Instead, it provides that a commission “may” accept a surety, but “shall accept cash bonds, passbooks or statement savings accounts and other financial guarantees . . . . in a form acceptable to the commission, and by a financial institution acceptable to the commission.”

Long-term maintenance bonds.  Public Act 12-182 authorizes long-term bonds, not to exceed one year, for the maintenance of public improvements after acceptance by the town.

Homeowners Association.  In response to one town’s efforts to circumvent Public Act 11-79, the new Act prohibits a commission from requiring the establishment of a homeowners association, or the placement of a deed restriction, easement or similar burden on property, for the maintenance of approved site improvements.  It is our understanding that this prohibition applies to public improvements, not improvements that will remain private such as within a common interest ownership community.

Building permits on unaccepted streets.   Public Act 12-182 prohibits a town having a planning commission from refusing to issue a building permit for lots in an approved site plan or subdivision where the site plan or subdivision has not expired.  This makes sense since existing law requires that all improvements be completed, or a financial guarantee provided for unfinished improvements, before a certificate of occupancy issues pursuant to a site plan, or a lot is sold or conveyed for a subdivision. 

Public Act 12-182 addresses the uncertainties and unresolved issues raised by Public Act 11-79, thus completing the intended improvements to the financial guarantee process for site plans and subdivisions started with Public Act 11-79.  Historic abuses by some towns have been eliminated.  However, safeguards for future homeowners and businesses are provided.

Developers and municipalities should work together during the permitting process to address how improvements will be completed.  Don’t wait until the approval is granted subject to “a bond to be established to the satisfaction of staff or town attorney” – this will only result in an appeal or, if the appeal period expires, no right to challenge bonding requirements contrary to the new law.  One method is to establish a detailed construction commencement, completion and bonding phasing plan that provides flexibility to a developer for building out the approved plan, and adequate assurances to a municipality that improvements are completed.

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