2009 California Government Code - Section 66499-66499.10 :: Chapter 5. Improvement Security

66499.  (a) Whenever this division or a local ordinance authorizes
or requires the furnishing of security in connection with the
performance of any act or agreement, if the developer is not a
nonprofit corporation described in subdivision (c) of Section
66499.3, the security shall be one of the following at the option of
and subject to the approval of the local agency and if the developer
is a nonprofit corporation described in subdivision (c) of Section
66499.3, the security shall be one of the following, subject to the
approval of the local agency:
   (1) Bond or bonds by one or more duly authorized corporate
sureties.
   (2) A deposit, either with the local agency or a responsible
escrow agent or trust company, at the option of the local agency, of
money or negotiable bonds of the kind approved for securing deposits
of public moneys.
   (3) An instrument of credit from an agency of the state, federal,
or local government when any agency of the state, federal, or local
government provides at least 20 percent of the financing for the
portion of the act or agreement requiring security, or from one or
more financial institutions subject to regulation by the state or
federal government and pledging that the funds necessary to carry out
the act or agreement are on deposit and guaranteed for payment, or a
letter of credit issued by such a financial institution.
   (4) A lien upon the property to be divided, created by contract
between the owner and the local agency, if the local agency finds
that it would not be in the public interest to require the
installation of the required improvement sooner than two years after
the recordation of the map.
   (5) Any form of security, including security interests in real
property, which is acceptable to the local agency and specified by
ordinance thereof.
   (b) Any contract or security interest in real property entered
into as security for performance pursuant to paragraph (4) or
paragraph (5) of subdivision (a) shall be recorded with the county
recorder of the county in which the subject real property is located.
From the time of recordation of the written contract or document
creating a security interest, a lien shall attach to the real
property particularly described therein and shall have the priority
of a judgment lien in an amount necessary to complete the agreed to
improvements. The recorded contract or security document shall be
indexed in the Grantor Index to the names of all record owners of the
real property as specified on the map and in the Grantee Index to
the local agency approving the map.
   The local agency may at any time release all or any portion of the
property subject to any lien or security interest created by this
subdivision or subordinate the lien or security interest to other
liens or encumbrances if it determines that security for performance
is sufficiently secured by a lien on other property or that the
release or subordination of the lien will not jeopardize the
completion of agreed upon improvements.

66499.1.  Except as provided in Section 66499.3, a bond or bonds by
one or more duly authorized corporate sureties to secure the faithful
performance of any agreement shall be in substantially the following
form:

   Whereas, The Board of Supervisors of the County of ____ (or the
City Council of the City of ____), State of California, and ____
(hereinafter designated as "principal") have entered into an
agreement whereby principal agrees to install and complete certain
designated public improvements, which said agreement, dated ____,
19_, and identified as project ____, is hereby referred to and made a
part hereof; and
   Whereas, Said principal is required under the terms of said
agreement to furnish a bond for the faithful performance of said
agreement.
   Now, therefore, we, the principal and ____, as surety, are held
and firmly bound unto the County of ____, (or City of ____)
hereinafter called ("____"), in the penal sum of ____ dollars ($____)
lawful money of the United States, for the payment of which sum well
and truly to be made, we bind ourselves, our heirs, successors,
executors and administrators, jointly and severally, firmly by these
presents.
   The condition of this obligation is such that if the above bounded
principal, his or its heirs, executors, administrators, successors
or assigns, shall in all things stand to and abide by, and well and
truly keep and perform the covenants, conditions and provisions in
the said agreement and any alteration thereof made as therein
provided, on his or their part, to be kept and performed at the time
and in the manner therein specified, and in all respects according to
their true intent and meaning, and shall indemnify and save harmless
____, its officers, agents and employees, as therein stipulated,
then this obligation shall become null and void; otherwise it shall
be and remain in full force and effect.
   As a part of the obligation secured hereby and in addition to the
face amount specified therefor, there shall be included costs and
reasonable expenses and fees, including reasonable attorney's fees,
incurred by county (or city) in successfully enforcing such
obligation, all to be taxed as costs and included in any judgment
rendered.
   The surety hereby stipulates and agrees that no change, extension
of time, alteration or addition to the terms of the agreement or to
the work to be performed thereunder or the specifications
accompanying the same shall in anywise affect its obligations on this
bond, and it does hereby waive notice of any such change, extension
of time, alteration or addition to the terms of the agreement or to
the work or to the specifications.
   In witness whereof, this instrument has been duly executed by the
principal and surety above named, on ____, 19_.

   Appropriate modifications shall be made in such form if the bond
is being furnished for the performance of an act not provided for by
agreement.

66499.2.  A bond or bonds by one or more duly authorized corporate
sureties for the security of laborers and materialmen shall be in
substantially the following form:

   Whereas, The Board of Supervisors of the County of ____ (or City
Council of the City of ____), State of California, and ____
(hereinafter designated as "the principal") have entered into an
agreement whereby the principal agrees to install and complete
certain designated public improvements, which agreement, dated ____,
20_, and identified as project ____, is hereby referred to and made a
part hereof; and
   Whereas, Under the terms of the agreement, the principal is
required before entering upon the performance of the work, to file a
good and sufficient payment bond with the County of ____ (or the City
of ____) to secure the claims to which reference is made in Title 15
(commencing with Section 3082) of Part 4 of Division 3 of the Civil
Code of the State of California.
   Now, therefore, the principal and the undersigned as corporate
surety, are held firmly bound unto the County of ____ (or the City of
____) and all contractors, subcontractors, laborers, materialmen,
and other persons employed in the performance of the agreement and
referred to in Title 15 (commencing with Section 3082) of Part 4 of
Division 3 of the Civil Code in the sum of ____ dollars ($____), for
materials furnished or labor thereon of any kind, or for amounts due
under the Unemployment Insurance Act with respect to this work or
labor, that the surety will pay the same in an amount not exceeding
the amount hereinabove set forth, and also in case suit is brought
upon this bond, will pay, in addition to the face amount thereof,
costs and reasonable expenses and fees, including reasonable attorney'
s fees, incurred by county (or city) in successfully enforcing this
obligation, to be awarded and fixed by the court, and to be taxed as
costs and to be included in the judgment therein rendered.
   It is hereby expressly stipulated and agreed that this bond shall
inure to the benefit of any and all persons, companies, and
corporations entitled to file claims under Title 15 (commencing with
Section 3082) of Part 4 of Division 3 of the Civil Code, so as to
give a right of action to them or their assigns in any suit brought
upon this bond.
   Should the condition of this bond be fully performed, then this
obligation shall become null and void, otherwise it shall be and
remain in full force and effect.
   The surety hereby stipulates and agrees that no change, extension
of time, alteration, or addition to the terms of the agreement or the
specifications accompanying the same shall in any manner affect its
obligations on this bond, and it does hereby waive notice of any such
change, extension, alteration, or addition.
   In witness whereof, this instrument has been duly executed by the
principal and surety above named, on ____, 20__.

66499.3.  Security to guarantee the performance of any act or
agreement shall be in the following amounts:
   (a) An amount determined by the legislative body, not less than 50
percent nor more than 100 percent of the total estimated cost of the
improvement or of the act to be performed, conditioned upon the
faithful performance of the act or agreement; and
   (b) An additional amount determined by the legislative body, not
less than 50 percent nor more than 100 percent of the total estimated
cost of the improvement or the performance of the required act,
securing payment to the contractor, to the subcontractors, and to
persons furnishing labor, materials, or equipment to them for the
improvement or the performance of the required act.
   (c) Whenever an entity required to furnish security in accordance
with subdivisions (a) and (b) is a California nonprofit corporation,
funded by the United States of America or one of its agencies, or
funded by this state or one of its agencies, the entity shall not be
required to comply with subdivisions (a) and (b), if the following
conditions are met:
   (1) A letter or letters of credit are provided pursuant to
paragraph (3) of subdivision (a) of Section 66499 for 100 percent of
the contract of improvements or the contractor installing the
improvements has bonded to the nonprofit corporation and the local
agency as coobligee the amount of 100 percent of the contract for the
faithful performance of the work, and has further bonded to the
nonprofit corporation and the local agency as coobligee an amount of
not less than 50 percent of the contract for the payment of labor and
materials, and those bonds comply with the provisions of this
chapter.
   (2) All moneys under the control of the nonprofit corporation and
payable to the contractor by the nonprofit corporation are deposited
in a depository complying with the provisions of this chapter, and
out of which moneys progress payments are conditioned upon:
   (A) The contractor's certification to the nonprofit corporation
that all labor performed in the work, and all materials furnished to
and installed in the work, have been paid for in full to the date of
the certification.
   (B) The written approval of the nonprofit corporation.
   (C) Review and approval of progress payment billings by local
government.
   (D) Final payment to the contractor not being made until 30 days
shall have expired after the filing and recording of the notice of
completion of the work and acceptance of the work by, and a waiver of
lien rights provided by the contractor to, the local agency in
writing.
   (3) All certifications as to progress payments shall be delivered
through the United States mail to the nonprofit corporation. The term
"progress payments" means payments made in compliance with the
schedule of partial payments agreed upon in the contract for the
work. No less than 10 percent of the total contract price shall be
retained for the 60 days following the filing of the notice of
completion.
   (d) Subject to the limitations of Section 66499.9, an amount
determined by the legislative body necessary for the guarantee and
warranty of the work for a period of one year following the
completion and acceptance thereof against any defective work or labor
done, or defective materials furnished.

66499.4.  As a part of the obligation guaranteed by the security and
in addition to the face amount of the security, there shall be
included costs and reasonable expenses and fees, including reasonable
attorneys' fees, incurred by the local agency in successfully
enforcing the obligation secured.

66499.5.  If the required subdivision improvements are financed and
installed pursuant to special assessment proceedings, the local
agency at its option may provide by local ordinance that, upon the
furnishing by the contractor of the faithful performance and labor
and material bonds required by the special assessment act being used,
the improvement security of the subdivider may be reduced by an
amount corresponding to the amount of such bonds so furnished by the
contractor.

66499.6.  Such money, negotiable bond or instrument of credit shall
be a trust fund to guarantee performance and shall not be subject to
enforcement of a money judgment by any creditors of the depositor
until the obligation secured thereby is performed to the satisfaction
of the local agency.

66499.7.  The security furnished by the subdivider shall be released
in whole or in part in the following manner:
   (a) Security given for faithful performance of any act or
agreement shall be released upon the performance of the act or final
completion and acceptance of the required work. The legislative body
may provide for the partial release of the security upon the partial
performance of the act or the acceptance of the work as it
progresses, consistent with the provisions of this section. The
security may be a surety bond, a cash deposit, a letter of credit,
escrow account, or other form of performance guarantee required as
security by the legislative body that meets the requirements as
acceptable security pursuant to law. If the security furnished by the
subdivider is a documentary evidence of security such as a surety
bond or a letter of credit, the legislative body shall release the
documentary evidence and return the original to the issuer upon
performance of the act or final completion and acceptance of the
required work. In the event that the legislative body is unable to
return the original documentary evidence to the issuer, the security
shall be released by written notice sent by certified mail to the
subdivider and issuer of the documentary evidence within 30 days of
the acceptance of the work. The written notice shall contain a
statement that the work for which the security was furnished has been
performed or completed and accepted by the legislative body, a
description of the project subject to the documentary evidence and
the notarized signature of the authorized representative of the
legislative body.
   (b) At the time that the subdivider believes that the obligation
to perform the work for which security was required is complete, the
subdivider may notify the local agency in writing of the completed
work, including a list of work completed. Upon receipt of the written
notice, the local agency shall have 45 days to review and comment or
approve the completion of the required work. If the local agency
does not agree that all work has been completed in accordance with
the plans and specifications for the improvements, it shall supply a
list of all remaining work to be completed.
   (c) Within 45 days of receipt of the list of remaining work from
the local agency, the subdivider may then provide cost estimates for
all remaining work for review and approval by the local agency. Upon
receipt of the cost estimates, the local agency shall then have 45
days to review, comment, and approve, modify, or disapprove those
cost estimates. No local agency shall be required to engage in this
process of partial release more than once between the start of work
and completion and acceptance of all work; however, nothing in this
section prohibits a local agency from allowing for a partial release
as it otherwise deems appropriate.
   (d) If the local agency approves the cost estimate, the local
agency shall release all performance security except for security in
an amount up to 200 percent of the cost estimate of the remaining
work. The process allowing for a partial release of performance
security shall occur when the cost estimate of the remaining work
does not exceed 20 percent of the total original performance security
unless the local agency allows for a release at an earlier time.
Substitute bonds or other security may be used as a replacement for
the performance security, subject to the approval of the local
agency. If substitute bonds or other security is used as a
replacement for the performance security released, the release shall
not be effective unless and until the local agency receives and
approves that form of replacement security. A reduction in the
performance security, authorized under this section, is not, and
shall not be deemed to be, an acceptance by the local agency of the
completed improvements, and the risk of loss or damage to the
improvements and the obligation to maintain the improvements shall
remain the sole responsibility of the subdivider until all required
public improvements have been accepted by the local agency and all
other required improvements have been fully completed in accordance
with the plans and specifications for the improvements.
   (e) The subdivider shall complete the works of improvement until
all remaining items are accepted by the local agency.
   (f) Upon the completion of the improvements, the subdivider, or
his or her assigns, shall be notified in writing by the local agency
within 45 days.
   (g) Within 45 days of the issuance of the notification by the
local agency, the release of any remaining performance security shall
be placed upon the agenda of the legislative body of the local
agency for approval of the release of any remaining performance
security. If the local agency delegates authority for the release of
performance security to a public official or other employee, any
remaining performance security shall be released within 60 days of
the issuance of the written statement of completion.
   (h) Security securing the payment to the contractor, his or her
subcontractors and to persons furnishing labor, materials or
equipment shall, after passage of the time within which claims of
lien are required to be recorded pursuant to Article 3 (commencing
with Section 3114) of Chapter 2 of Title 15 of Part 4 of Division 3
of the Civil Code and after acceptance of the work, be reduced to an
amount equal to the total claimed by all claimants for whom claims of
lien have been recorded and notice thereof given in writing to the
legislative body, and if no claims have been recorded, the security
shall be released in full.
   (i) The release shall not apply to any required guarantee and
warranty period required by Section 66499.9 for the guarantee or
warranty nor to the amount of the security deemed necessary by the
local agency for the guarantee and warranty period nor to costs and
reasonable expenses and fees, including reasonable attorneys' fees.
   (j) The legislative body may authorize any of its public officers
or employees to authorize release or reduction of the security in
accordance with the conditions hereinabove set forth and in
accordance with any rules that it may prescribe.
   (k) This section shall remain in effect only until January 1,
2011, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2011, deletes or extends
that date.

66499.8.  In all cases where the performance of the obligation for
which the security is required is subject to the approval of another
agency, the local agency shall not release the security until the
obligation is performed to the satisfaction of such other agency.
Such agency shall have two months after completion of the performance
of the obligation to register its satisfaction or dissatisfaction.
If at the end of that period it has not registered its satisfaction
or dissatisfaction, it shall be conclusively deemed that the
performance of the obligation was done to its satisfaction.

66499.9.  Any liability upon the security given for the faithful
performance of any act or agreement shall be limited to:
   (a) The performance of the work covered by the agreement between
the subdivider and the legislative body or the performance of the
required act.
   (b) The performance of any changes or alterations in such work;
provided, that all such changes or alterations do not exceed 10
percent of the original estimated cost of the improvement.
   (c) The guarantee and warranty of the work, for a period of one
year following completion and acceptance thereof, against any
defective work or labor done or defective materials furnished, in the
performance of the agreement with the legislative body or the
performance of the act.
   (d) Costs and reasonable expenses and fees, including reasonable
attorneys' fees.

66499.10.  Where the security is conditioned upon the payment to the
contractor, his subcontractors and to persons furnishing labor,
materials or equipment to them for the improvement of the performance
of an act and takes the form of a deposit of money or negotiable
bonds, a suit to recover the amount due the claimant may be
maintained against the holder of such deposit. Where the security
takes the form of a surety bond, or surety bonds, the right of
recovery shall be in a suit against the surety. Where the security
takes the form of an instrument of credit, the cause of action shall
be against the financial institution obligating itself on such
instrument of credit.