Security for Public Improvements
Jeffrey L. Rehmeyer II
Security for Public Improvements – Don’t Let a Developer Build Without It!
By: Attorney Jeffrey L. Rehmeyer II & Summer Associate Tabitha D. Burke
Failure of a developer or contractor to complete work on public improvements in a subdivision or land development may leave a municipality at risk for the funding and completion of the improvements. When a developer provides security for public improvements, it guarantees that the municipality will have the money available to complete the improvements at no cost to itself and its taxpayers. Financial security protects a municipality by ensuring funds are available, and the security acts as a guarantee that the work will be completed prior to final approval by the municipality.
As a safeguard for municipalities, the Pennsylvania Legislature has enacted financial security requirements in the Pennsylvania Municipalities Planning Code, 53 P.S. § 10509 (§ 509). Specifically, § 509(c) authorizes letters of credit and escrow accounts as a type of financial security. Municipalities may also accept financial security in the form of a corporate surety bond. The corporate surety bond requires that one party be a surety for the developer so that in the event the improvements are not completed, the surety is obligated to either pay the municipality in an amount that sufficiently covers the remaining improvements or to complete the improvements itself.
On the other hand, a letter of credit is an irrevocable promise by a bank to pay the municipality upon failure by the developer to complete the improvements. While § 509(c) grants the municipality the power to determine which type of financial security it will receive, a municipality is prohibited from enforcing blanket provisions that exclude one or more forms of security. The court in Scherersville Development Corp. v. Twp. of Whitehall held that all propositions of financial security must be reviewed on a case-by-case basis, because to prohibit one type of security through a blanket provision is “unreasonable and illegal.”
When securing the completion of improvements, § 509(f) authorizes a municipality to require 110% of the estimated cost of completion to be posted prior to commencement of the project. Before approving financial security, a municipality must be sure to secure all improvements that may be required. If a municipality fails to secure any required improvement, it may, at the expiration of the security, find itself responsible to fund and complete any improvements not secured. The court in Setzer v. Mercer County held that the township breached its duty to the public by failing to secure the completion of the roads and, upon expiration of the bond, was therefore responsible for funding and completing the improvements.
For public improvements in your municipality, be sure to obtain appropriate security to ensure completion. If you have questions about security for public improvements or the cases referenced above, please contact a member of the CGA Law Firm Municipal Law practice group for assistance.
