The three parties of this bond include the obligee, the principal, and the surety company. The obligee is the municipality that is requiring the principal to be bonded. The property owner (principal) must provide a Grading Permit Surety Bond in order to legally get a grading and/or building permit. The surety company is the party that underwrites and ensures the bond.
This bond guarantees that the grading is being worked on according to the approved building plans and the terms of the permit.
A surety bond is an agreement between the three parties that the principal will act accordingly to what is stated in the bond. If the property owner acts fraudulently or fails to abide by the bond requirements, then the surety company will cover the claim filed against the principal.
The municipality requires the property owner to be bonded. The bonding requirements state that the principal will abide by the local government’s grading laws and regulations. It is a good idea for the principal to be informed on all requirements before applying for a bond.
The Grading Permit Surety Bond amount is the amount of coverage the surety company will pay out to the party harmed if a claim is filed against the bond. Bond amount is set by the municipality, not the surety company. It is important for the principal to understand that the municipality is the only party that can release the bond once the grading is completed and approved. That means the bonds are billed annually until the municipality releases the bond.
The cost for the bond is also referred to as the bond premium. The bond premium is the only cost that the surety company sets. All other fees that are related to the bond are set by the obligee. The bond premium is only a small percentage of the bond amount.
For some projects, if the size of the grading bond exceeds $100,000, then additional documents may be required. The obligee will ask for this additional information if necessary.