Learn more about encroachment bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Encroachment Bonds?
Encroachment occurs when a construction project requires a contractor to work on private property that is adjacent to public property. This can include roads, fences, sidewalks, easements, etc. that could be unintentionally damaged or altered during construction. In such cases, the government entity with jurisdiction over that public property may require the contractor to obtain an encroachment bond to provide protection against the cost of returning the public property to its original condition.
In most cases, obtaining an encroachment bond is a condition for the issuance of a construction permit, so the bond is considered a type of license and permit bond.
Who Needs Them?
Contractors working on private projects on land bordering public property are subject to the municipality’s requirement for an encroachment bond. The bond requirement must be met in order to receive a construction permit.
How Do They Work?
The parties to the bond are the municipality requiring the bond (the obligee), the contractor applying for the construction permit and purchasing the bond (the principal), and the company issuing the bond (the surety).
The terms of the bond will specify exactly what the contractor is required to do to remain in compliance. In general, the bond obligates the contractor to avoid damaging or altering the public property the private work site encroaches upon. The bond also holds the contractor legally responsible for the cost of making any repairs to the public property necessitated by the contractor’s actions.
If the municipality files a claim against the bond, the surety will verify that the claim is valid before paying it. 0nce the claim has been paid, the contractor is legally obligated to reimburse the surety for the amount paid out.
What Do They Cost?
As the obligee, the municipal government establishes the required bond amount, which is typically $100,000 or more. The principal will pay a premium, set by the surety, which is a small percentage of that bond amount.
In setting the premium rate for an applicant, the surety will take into account the contractor’s creditworthiness and financial condition. The surety will also look at the contractor’s experience and reputation to assess the likelihood of any violation that could result in a claim in the first place.
Call us today for a quote on an encroachment bond, or use our convenient online application form to get started.
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