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Performance Bond

State law authorizes local governments to require performance guarantees.  For some reason, Ann Arbor and Washtenaw County never do....

Act 110 of 2006

125.3505 Performance guarantee.

Sec. 505.

(1) To ensure compliance with a zoning ordinance and any conditions imposed under a zoning ordinance, a local unit of government may require that a cash deposit, certified check, irrevocable letter of credit, or surety bond acceptable to the local unit of government covering the estimated cost of improvements be deposited with the clerk of the legislative body to insure faithful completion of the improvements. The performance guarantee shall be deposited at the time of the issuance of the permit authorizing the activity or project. The local unit of government may not require the deposit of the performance guarantee until it is prepared to issue the permit. The local unit of government shall establish procedures by which a rebate of any cash deposits in reasonable proportion to the ratio of work completed on the required improvements shall be made as work progresses.

(2) This section shall not be applicable to improvements for which a cash deposit, certified check, irrevocable bank letter of credit, or surety bond has been deposited under the land division act, 1967 PA 288, MCL 560.101 to 560.293.

History: 2006, Act 110, Eff. July 1, 2006

City Code

Under Ann Arbor code, security for completion of public or private improvements is located in Chapter 57, 5:134.  Some of the references to site improvements and "private" site improvements are in boldface.  Note that the last update to this section was 2005.  The MZEA was implemented in 2006, and the MPEA in 2008.  The City has never comprehensively dealt with required updates to the local code to bring it into full compliance with these statutes. That was something that was supposed to be completed after ZORO was done, but ZORO seems to have fallen off the calendar.  This section of the code could be broadened substantially based on the language of the 2006 MZEA.  It appears to have largely been written to provide developers an out to occupy buildings in the winter, when completion of asphalt, concrete and landscaping might be impractical, but it does not limit the security to only site and landscape items.  "Improvements" on land can be buildings, utilities, landscaping, roads, etc.--just about anything that wasn't on the land to begin with.
5:134. - Security for completion of improvements.


For a single-structure development, where it would be impractical to delay occupancy prior to the completion of certain site improvements due to cold weather or lack of availability of paving or plant materials, a temporary certificate of occupancy for a building may be issued upon the approval of the Planning and Development Services Manager or designee for a period of up to six months provided (a) all public utilities necessary to serve the building have been constructed, passed initial acceptance testing and been maintained in a clean, operable condition and (b) security is presented to the City for the remaining site improvements. Issuance of a temporary certificate of occupancy does not alter, reduce or change any other requirement necessary for a certificate of occupancy.


For a multiple-structure development or phased development where it would be impractical to delay occupancy for any building prior to completion of all public and private improvements, a certificate of occupancy may be issued provided all the conditions in the following subparagraphs are met.


All proposed roads within the applicable phase must be complete, including curb and gutter and associated sidewalks. Where it would be impractical to delay occupancy due to cold weather or lack of availability of paving materials, the road surface or associated sidewalk may be incomplete provided that the road meets fire services unit requirements and security is posted for these items. For purposes of this section, road shall mean public road, private street or access driveway.


All other private site improvements within the applicable phase, such as, but not limited to, lead walks, pedestrian paths, parking spaces or lots, storm water conveyance and management systems and landscaping directly adjacent to or for the direct benefit of any building for which a certificate of occupancy is requested must be installed. Where it would be impractical to delay occupancy prior to the completion of certain private site improvements due to cold weather or lack of availability of paving or plant materials, security may be posted for these items.


All public utilities which serve the applicable phase, including sanitary, storm and water conveyance and connection systems, are constructed, have passed initial acceptance testing and are in a clean, operable condition.


All easements for public facilities or improvements which serve or benefit the phase must have been granted, accepted and recorded.


Security has been posted to allow use of all public facilities prior to final acceptance. The purpose of this security is to ensure that any repairs and/or maintenance required to restore public water mains, sanitary and storm systems within, servicing or benefitting the site to an acceptable final condition can be accomplished. This security must be maintained in full until final acceptance.


The owner of the property or legally appointed designee has signed an agreement acceptable to the City Attorney to make all repairs to all public facilities within the site regardless of source of damage.


All applicable provisions or obligations of the owner in a site development agreement have been completed and fulfilled.


Conditions required to obtain a certificate of occupancy for the last building within a multi-structure development shall be those required for a single structure development.


Where security is posted to secure any obligation of the owner in this Chapter, the following requirements apply:


The amount of security required shall be the estimated costs to the City, as determined by the Planning and Development Services Manager or designee, to perform the activity to be secured plus 50% to cover contingencies, plus a nonrefundable administrative fee for accepting, holding, and releasing the security. Security posted for any activity may be applied to any other activity for which security is required. The administrative fee shall be established by City Council upon recommendation of the City Administrator.


The security shall be accompanied by a letter acceptable to the City Attorney from the property owner or owner's designee indicating that the secured activities will be completed or satisfactorily performed by the deadline established by the Planning and Development Services Manager or designee. It shall authorize the City or its designee to go onto the property without any further notice or authorization from the owner and complete the construction, perform repairs or install uncompleted site improvements. It shall include an agreement by the property owner that if the secured activities are performed by the City and the costs to the City exceed the amount of the security available to pay the costs, then the property owner agrees to pay the excess costs. The letter shall provide an address to which the City may send the property owner via first class mail notices that may be required or appropriate under this ordinance. In the case of repairs, if the repairs are not made after reasonable notice to the Owner, or if an emergency condition exists which requires rapid response without notice to the Owner, the City may proceed to make or have made the necessary repairs and invoice the Owner for all reasonable costs associated with the repairs. If the Owner does not pay the amount owed within 20 days of the City sending the invoice, the City shall draw upon the posted security for the full amount of the invoice plus any other outstanding costs for which the Owner is obligated to the City.


It shall be the responsibility of the owner to notify in writing the appropriate City departments when secured work or improvements have been completed and to request a compliance inspection for the phase or site. The City shall conduct the compliance inspection within 30 days of the request unless there is evidence that the work or improvements were incomplete at the time of the request. The property owner may request, in writing, return of security only after all the obligations, improvements and facilities for which the property owner provided security have been completed or fulfilled. Requests for return of the security made prior to completion of the obligation for which the security was posted are void and of no effect. Portions of the security amount, with the exception of the public facility maintenance/repair security, may be returned as work progresses, at reasonable intervals, provided that at all times the amount on deposit equals the estimated cost of the work to be completed plus 50%. Upon receipt of a written request and confirmation of final acceptance of a phase or site, the City will endeavor to return the remaining balance of the posted security within 30 days of the date of final acceptance.


Interest on the security shall be computed for each quarter where the lowest principal balance during the quarter exceeds $2,000. Interest shall be computed as simple interest at a rate 0.5% lower than the average earned by the City during the prior quarter on securities held pursuant to this section of the City Code. It shall be paid at the time the final principal balance is returned to the property owner. Any security remaining with the City 18 months after the date set for completion of the work, as specified in the letter required by this section, for which there is not a written request to return the balance, shall be forfeited to the City for the City's unrestricted use.


If improvements have not been completed by the stated date, the Planning and Development Services Manager or designee may, after notice to the property owner or owner's designee, revoke the certificate of occupancy and/or transfer the security to the City general fund. Thereafter the City shall be authorized to go onto the property and complete the construction or installation of uncompleted site improvements in accordance with the approved site plan, plat, land division, or development agreement with the funds available. If the cost to the City for completing the site improvements exceeds the amount of the security, the City shall make demand upon all responsible parties for payment and, if the balance is not promptly paid, may proceed with collection.

(Ord. No. 78-70, 5-1-72; Ord. No. 10-83, 4-18-83; Ord. No. 69-91, § 1, 12-16-91; Ord. No. 63-92, § 1, 10-5-92; Ord. No. 31-97, § 1, 7-7-97; Ord. No. 49-98, § 5, 1-19-99; Ord. No. 29-00, § 1, 6-5-00; Ord. No. 43-04, § 22, 1-3-05)