Suretyship and
   Green Building
 Chris Cheatham, LEED AP, Esq.
www.greenbuildinglawupdate.com
Suretyship and Green Building

What will you learn?
 1. Surety enters into three-party
    contract with owner, contractor...
[TITLE OF PRESENTATION]
   Suretyship and Green Building

    Agenda

    • Suretyship 101
    • Bonds in Construction
   ...
[TITLE OF PRESENTATION]
        Suretyship 101

 Mandatory, unintelligible definition:

    Suretyship is a “contractual re...
[TITLE OF PRESENTATION]
        Suretyship 101
  Three parties - tripartite agreement:
                   Creditor




   ...
[TITLE OF PRESENTATION]
        Suretyship 101
  Two key surety rules:
     (1) Debtor is responsible to satisfy
     obli...
[TITLE OF PRESENTATION]
        Suretyship 101

    But what if Debtor fails to pay or
    perform?
                      ...
[TITLE OF PRESENTATION]
        Suretyship 101
  Two key surety rules:
     (2) If debtor fails to pay or perform
     and...
[TITLE OF PRESENTATION]
   Suretyship and Green Building
           Suretyship 101

    Two key surety rules:
       (2) D...
[TITLE OF PRESENTATION]
   Suretyship and Green Building
           Suretyship 101

    What does surety get?
      1. Pre...
[TITLE BondsPRESENTATION]
        OF in Construction
 Surety and Construction:


                                         ...
[TITLE BondsPRESENTATION]
        OF in Construction
 Surety and Construction:
 surety is
 answerable,
                   ...
[TITLE BondsPRESENTATION]
        OF in Construction

   Three types of surety bonds for
   construction:
      1. Payment...
[TITLE BondsPRESENTATION]
        OF in Construction
   Payment Bond
     • Guarantees owner that
       subcontractors wi...
[TITLE BondsPRESENTATION]
        OF in Construction
   Performance Bond
     • Surety guarantees satisfactory
       comp...
[TITLE OFRole in Green Building
  A Surety’s PRESENTATION]

            1. Green Roof Leaks


                            ...
[TITLE OFRole in Green Building
  A Surety’s PRESENTATION]


   Fact: Sureties are already bonding
   green building proje...
[TITLE OFRole in Green Building
  A Surety’s PRESENTATION]
   How Underwriters Can Assess Surety’s Risk
   in Green Buildi...
[TITLE as Enforcement Mechanism
  Bonds OF PRESENTATION]

  • Green building regulations require
    enforcement mechanism...
[TITLE as Enforcement Mechanism
  Bonds OF PRESENTATION]
   Washington, D.C. -
   Green Building Act of 2006
         Sect...
[TITLE as Enforcement Mechanism
  Bonds OF PRESENTATION]

   Surety and Fidelity Association of
   America and Surety Bond...
[TITLE as Enforcement Mechanism
  Bonds OF PRESENTATION]
    “Surety groups fear risks in D.C.
    green building act”
   ...
[TITLE as Enforcement Mechanism
  Bonds OF PRESENTATION]
   Arlington County -
   Bonus Density Program
     • Developer d...
[TITLE as Enforcement Mechanism
  Bonds OF PRESENTATION]
   Arlington County -
   Bonus Density Program
     • Enforcement...
[TITLE OF PRESENTATION]
   Suretyship and Green Building


       Arlington County has successfully
      required and rel...
Suretyship and Green Building

What did you learn?
 1. Surety enters into three-party
    contract with owner, contractor
...
Suretyship and Green Building
Want to learn more?




     www.greenbuildinglawupdate.com
     chris@greenbuildinglawupdat...
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Suretyship and Green Building

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Chris Cheatham provides an overview of the intersection between suretyship and green building. If you have ever wondered what exactly is a surety, or how a surety fits into the green building industry, this is the presentation for you.

If you would like to learn more about this or other green building topics, please visit www.greenbuildinglawupdate.com or email Chris at chris@greenbuildinglawupdate.com.

Thanks for viewing.

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Suretyship and Green Building

  1. 1. Suretyship and Green Building Chris Cheatham, LEED AP, Esq. www.greenbuildinglawupdate.com
  2. 2. Suretyship and Green Building What will you learn? 1. Surety enters into three-party contract with owner, contractor 2. Performance bond guarantees contractor will build to plans 3. Bonds can be used to enforce green building requirements Chris Cheatham - www.greenbuildinglawupdate.com
  3. 3. [TITLE OF PRESENTATION] Suretyship and Green Building Agenda • Suretyship 101 • Bonds in Construction • A Surety’s Role in Green Building • Bonds as Enforcement Mechanism Chris Cheatham - www.greenbuildinglawupdate.com
  4. 4. [TITLE OF PRESENTATION] Suretyship 101 Mandatory, unintelligible definition: Suretyship is a “contractual relationship whereby one person engages to be answerable for the debt or default of another.” -Sterns, The Law of Suretyship 1 (1951) Chris Cheatham - www.greenbuildinglawupdate.com
  5. 5. [TITLE OF PRESENTATION] Suretyship 101 Three parties - tripartite agreement: Creditor Debtor Surety Chris Cheatham - www.greenbuildinglawupdate.com
  6. 6. [TITLE OF PRESENTATION] Suretyship 101 Two key surety rules: (1) Debtor is responsible to satisfy obligation to pay or perform Creditor Debtor Surety Chris Cheatham - www.greenbuildinglawupdate.com
  7. 7. [TITLE OF PRESENTATION] Suretyship 101 But what if Debtor fails to pay or perform? Creditor Debtor Surety Chris Cheatham - www.greenbuildinglawupdate.com
  8. 8. [TITLE OF PRESENTATION] Suretyship 101 Two key surety rules: (2) If debtor fails to pay or perform and another party, who has previously promised to pay debt or perform obligation satisfies the debt, then performing party can receive reimbursement for payment. Chris Cheatham - www.greenbuildinglawupdate.com
  9. 9. [TITLE OF PRESENTATION] Suretyship and Green Building Suretyship 101 Two key surety rules: (2) Debtor fails, Surety performs, Surety reimbursed by Debtor Creditor Debtor Surety Chris Cheatham - www.greenbuildinglawupdate.com
  10. 10. [TITLE OF PRESENTATION] Suretyship and Green Building Suretyship 101 What does surety get? 1. Premium paid by debtor 2. Debtor’s duty of reimbursement (indemnification agreement) Chris Cheatham - www.greenbuildinglawupdate.com
  11. 11. [TITLE BondsPRESENTATION] OF in Construction Surety and Construction: Developer Guy Contractor Guy Surety Guy Chris Cheatham - www.greenbuildinglawupdate.com
  12. 12. [TITLE BondsPRESENTATION] OF in Construction Surety and Construction: surety is answerable, Developer Guy through bond, for debt or default of contractor to owner. Contractor Guy Surety Guy Chris Cheatham - www.greenbuildinglawupdate.com
  13. 13. [TITLE BondsPRESENTATION] OF in Construction Three types of surety bonds for construction: 1. Payment Bond 2. Bid Bond 3. Performance Bond Chris Cheatham - www.greenbuildinglawupdate.com
  14. 14. [TITLE BondsPRESENTATION] OF in Construction Payment Bond • Guarantees owner that subcontractors will be paid monies due by contractor Bid Bond • Guarantees owner that contractor will honor bid and sign contract Chris Cheatham - www.greenbuildinglawupdate.com
  15. 15. [TITLE BondsPRESENTATION] OF in Construction Performance Bond • Surety guarantees satisfactory completion of project by contractor • Contractor must build according to plans and specifications • Otherwise surety must (1) complete project or (2) allow owner to complete, surety pays costs Chris Cheatham - www.greenbuildinglawupdate.com
  16. 16. [TITLE OFRole in Green Building A Surety’s PRESENTATION] 1. Green Roof Leaks 3. Surety Pays 2. Contractor Developer or Defaults Rebuilds Chris Cheatham - www.greenbuildinglawupdate.com
  17. 17. [TITLE OFRole in Green Building A Surety’s PRESENTATION] Fact: Sureties are already bonding green building projects Fact: Sureties are just now assessing inherent green building project risks Fact: No major surety has specific green building bond Chris Cheatham - www.greenbuildinglawupdate.com
  18. 18. [TITLE OFRole in Green Building A Surety’s PRESENTATION] How Underwriters Can Assess Surety’s Risk in Green Building: 1. Is it a green building project? 2. Did contractor guarantee certification? 3. What green strategies involved? 4. What green regulations apply? 5. Is compliance achievable? Chris Cheatham - www.greenbuildinglawupdate.com
  19. 19. [TITLE as Enforcement Mechanism Bonds OF PRESENTATION] • Green building regulations require enforcement mechanisms • Entities using bonds as enforcement mechanisms: • Washington, D.C. • Arlington County Chris Cheatham - www.greenbuildinglawupdate.com
  20. 20. [TITLE as Enforcement Mechanism Bonds OF PRESENTATION] Washington, D.C. - Green Building Act of 2006 Section 4 - starting January 1, 2012, private projects • greater than 50,000 square feet must be LEED certified “(b) On or before January 1, 2012, all applicants for • construction governed by section 4 shall provide a performance bond” “(g) All or part of the performance bond shall be • forfeited to the District and deposited in the Green Building Fund if the building fails to meet the verification requirements described in sections 3 and 4.” Chris Cheatham - www.greenbuildinglawupdate.com
  21. 21. [TITLE as Enforcement Mechanism Bonds OF PRESENTATION] Surety and Fidelity Association of America and Surety Bond Producers: Letter to Government of D.C., August 13, 2007 • “The new law incorrectly uses the term ‘performance bond.’ In • short, the performance bond assures that the construction contract, and therefore, the project will be completed.” The bond in the Green Building Act “seems to function more in • the manner of a license or compliance bond, which typically guarantees compliance with a law or code.” Chris Cheatham - www.greenbuildinglawupdate.com
  22. 22. [TITLE as Enforcement Mechanism Bonds OF PRESENTATION] “Surety groups fear risks in D.C. green building act” Washington Business Journal, December 12, 2008 • “Alan Heymannn, a spokesman for the D.C. Department of the • Environment, said his agency has formed a working group with the Department of Consumer and Regulatory Affairs to address the surety industry’s concerns.” Surety Guy is Happy! Chris Cheatham - www.greenbuildinglawupdate.com
  23. 23. [TITLE as Enforcement Mechanism Bonds OF PRESENTATION] Arlington County - Bonus Density Program • Developer declares intent to achieve LEED certification • Developer applies for FAR variance • .15 - certified • .25 - silver • .35 - gold/platinum Chris Cheatham - www.greenbuildinglawupdate.com
  24. 24. [TITLE as Enforcement Mechanism Bonds OF PRESENTATION] Arlington County - Bonus Density Program • Enforcement Mechanism: Bond • Bond = Bonus Space * Rental Rate • Developer posts when 75% complete • Bond released upon certification Chris Cheatham - www.greenbuildinglawupdate.com
  25. 25. [TITLE OF PRESENTATION] Suretyship and Green Building Arlington County has successfully required and released two bonds. Developer Guy and Surety Guy Happy!
  26. 26. Suretyship and Green Building What did you learn? 1. Surety enters into three-party contract with owner, contractor 2. Performance bond guarantees contractor will build to plans 3. Bonds can be used to enforce green building requirements Chris Cheatham - www.greenbuildinglawupdate.com
  27. 27. Suretyship and Green Building Want to learn more? www.greenbuildinglawupdate.com chris@greenbuildinglawupdate.com Chris Cheatham - www.greenbuildinglawupdate.com
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