A new law, effective January 1, 2006, makes it easier and quicker for many developers to secure the release of bonds used to guarantee subdivision improvements and the performance of other work.
Assembly Bill 1460, sponsored by Assemblyman Tom Umberg (D-Orange County), amended section 66499.7 of the Subdivision Map Act to include specific procedures and timelines for agencies to release performance security given by developers for subdivision improvements. Most notably, the law includes a "partial release" provision, which can be helpful to developers who are paying the high cost of large bonds over a long period. These provisions do not apply to any warranty security or guarantee.
In general, the new law provides:
If the agency determines that the work is not complete, it may provide for partial release of the security. The partial release procedure is described below.
These new provisions have the potential of providing more certainty as to the time frame for bond releases, as well as streamlining the process and even providing earlier access to secured funds. In addition, the new partial release procedure should operate to limit an agency’s "punch list" of improvements that must be completed before the bond can be released; in other words, the agency should be held to that first list of deficiencies and cannot add on during the process.
Nonetheless, the new law appears to have a few weaknesses. In particular, the agency holding the security may be able to waive the partial release provisions. Although some of the statutory language indicates that the agency must participate in the partial release procedure if the subdivider elects to pursue it, other language in the bill indicates that this procedure may be optional for the agency, regardless of the subdivider’s election. Moreover, the statute does not provide procedures in the event that the agency fails to respond or disagrees with the cost estimate. Further, the statute does not contain any retroactivity provision, so that it appears to only apply to security given after its effective date, January 1, 2006, rather than earlier bonds. It does not appear that the date of the subdivision improvement agreement pursuant to which the improvements are being provided and secured in the first instance is relevant to this analysis of the new statute’s applicability.
While the new law is a step in the direction of clarifying the release of improvement security and of compelling agencies to hold security no longer than necessary, it appears to potentially fall short of those objectives. In any event, it is imperative for developers to take the necessary steps to make the best use of the new law, as the more far-reaching changes in the law are left to the developer’s option.
Cal. Gov’t Code § 66499.7