Every real estate transaction carries high value and a lot of risk with it. Surety bonds protect the investment of a project owner and ensures he gets value for his money. Contractors working on real estate projects have to furnish surety bonds before they are awarded the contract. They have to furnish maintenance bond in particular, which ensures that the building they build will stay in the optimum condition for at least a specified time. After that period, any defect or fault will not be covered under the scope of the bond.
Different Parties to Maintenance Bonds
• Contractors, purchase these bonds to showcase the quality of their work and durability. They have to get these bonds as a mandatory document to win the project.
• Project owners, who keep these bonds as a surety that their real estate project will be delivered as per contracted terms. If there is a default, they will be compensated for it and won’t have to cover for the default from their pocket.
• The surety company, which issues the bond runs a full check on the contractor’s background. They have to run these checks to make sure that they are putting their money on the right person. Before they issue the bond they create necessary channels required to later recover the money from the contractor in case he defaults.
More about Maintenance Bonds
Under maintenance bonds, contractors have to pay the entire money of the bond value in full, as compared to an insurance bond where the premium is just a fraction of the insurance value.
In case of a default, the contractors at times try to pay in cash for losses directly to the project owner. A maintenance bond restricts them from doing such a thing outside the scope of the bond.