DC Condominium Warranty Bonds: Requirements, Cost & How to Apply

What is a DC condominium warranty bond?

A DC condominium warranty bond is a surety bond that a condominium developer (called the declarant) posts with the District of Columbia to back its statutory warranty against structural defects. The bond equals 10% of the project's estimated hard construction or conversion costs. If the developer doesn't repair a covered defect in a unit or the common elements, the unit owner or owners' association can file a claim and be paid from the bond, up to its limits. The bond involves three parties: the developer (the principal), the surety that issues the bond, and the District, which holds the bond for the benefit of condo purchasers.

Key facts

Who needs a DC condominium warranty bond?

Every declarant that creates a condominium in the District, whether by new construction or by converting an existing building, must post warranty security before selling residential units. The requirement applies to condominiums registered after January 1, 1999. Developers can post a surety bond, a letter of credit, or another form the Mayor approves. A bond is usually the most capital-efficient choice because it doesn't tie up cash or bank credit lines during the warranty period.

D.C. Law 24-262 changed several warranty security rules for projects in 2023. Older guides that say the security is due only before the first sale, or that list deeds of trust on unsold units as acceptable security, are out of date.

How does condominium registration and warranty security work in DC?

In DC, a developer can’t offer or sell condo units until the condominium is registered with the DC Department of Housing and Community Development (DHCD). DHCD’s Rental Conversion and Sale Division handles registration for the Mayor. It also holds the warranty security and keeps a public record of it. The steps depend on whether the project is new construction or a conversion of an existing rental building.

Step 1: Meet the conversion requirements (rental conversions only)

A developer converting an occupied rental building must first get the Mayor’s certification under the Rental Housing Conversion and Sale Act of 1980:

• Tenant election: The owner sends each tenant and DHCD a written request for a tenant election and posts it in common areas. A Spanish translation is required where the head of household’s primary language is Spanish. Tenants have 30 days to form a tenant organization, and the election must be held within 60 days of the owner’s request.
• Approval threshold: The conversion is approved if more than 50% of qualified voters vote for it. If it fails, the owner can’t request another election for that building for one year. If no election is held within 60 days, the Mayor can certify the conversion anyway.
• Certification window: Certification lasts 180 days. If the conversion isn’t completed in that time, the owner must wait a year before trying again.
• Vacant buildings: A vacant rental building may qualify for a vacancy exemption, which DHCD handles through a separate application.

Step 2: File the registration application

The developer files a registration application with DHCD. The application includes:

• An agent in DC appointed to receive legal process
• Any prior registrations in other jurisdictions and any adverse orders against the developer or its principals
• The names, addresses and five-year work history of officers and principals
• A title opinion from an independent attorney, dated within 30 days of filing
• Management agreements and other contracts that affect the condominium
• Plats and plans showing every unit and building
• The proposed public offering statement, which is the main disclosure document for buyers
• A sworn statement of estimated hard construction or conversion costs, including labor and materials. This sets the bond amount.
• A filing fee, which DHCD sets by rule (at least $100)

For a conversion, the public offering statement must also include an architect’s or engineer’s report on the building’s structural components and major systems. The report covers their condition, age, expected remaining life and replacement cost.

Step 3: Post the warranty bond at registration

When DHCD issues the condominium registration order, the developer posts warranty security equal to 10% of the estimated hard costs. The security can be a surety bond, a letter of credit, or another form the Mayor approves. No residential unit can be conveyed until it’s posted. If it’s still missing at the first closing, the escrow agent must collect it at settlement and send it to the Mayor.

Step 4: Notify tenants (conversions only)

Once registration is approved, the developer gives each tenant at least 120 days’ notice of the conversion, but no sooner than 10 days after approval. Tenants have the exclusive right to buy their unit during the first 60 days, on terms at least as favorable as those offered to the public. Subtenants get the next 60 days.

Step 5: Share the bond with buyers and the board

The developer must give each purchaser a copy of the warranty security at least seven days before the unit’s first conveyance. The developer must also give the condominium board a copy before 30 days after developer control ends.

Step 6: Pay conversion fees at closing (conversions only)

Converted units owe a conversion fee of 5% of each unit’s sales price. It’s paid into escrow at settlement, and the escrow agent sends it to DHCD within 30 business days. Exemptions apply to some units, including those sold to low-income households, longtime tenant-occupants, and qualifying elderly or disabled tenants.

Step 7: True up the bond at substantial completion

The project architect certifies the actual hard costs. If they exceed the sworn estimate by more than 10%, the developer posts additional security equal to 10% of the difference.

Step 8: Reduce and release the bond

The two-year warranty for each unit starts at its first sale. For common elements, it starts at the later of the first unit sale or their completion. Starting two years after each unit sells, the developer can ask DHCD for a pro rata reduction. The bond can’t fall below 50% of the original amount until one year after the owners’ association takes control. It stays in place while any claim is pending. Once all warranty periods end and no claims remain, DHCD releases the bond with the Mayor’s approval.

Older guides that name DCRA as the agency for condo registration are out of date. DHCD’s Rental Conversion and Sale Division now handles registration, conversion elections and warranty security.

How much does a DC condominium warranty bond cost?

The premium for a DC condominium warranty bond typically ranges from 3% to 10% or more of the bond amount per year. Because the bond stays in force until DHCD releases it, developers should plan for several years of premium. The final rate depends on the developer's financial statements, construction experience, project size and lender support. The table below shows estimated annual premiums at common bond sizes; developers with weaker financials or less experience may pay more than 10%.

Circle Surety can provide quotes for these and many other bonds through our online portal.

How to get a DC condominium warranty bond

1. Confirm the project. Make sure the condominium is being registered with DHCD and includes units that may be used residentially.
2. Gather the project details. Use the declarant's exact legal name, the condominium's name and address, and the sworn hard cost estimate filed with DHCD.
3. Apply online. Fill out the short form below, as the developer or on your client's behalf. Underwriting reviews the developer's financials, experience and project budget to set the final premium.
4. Sign the indemnity. Like most construction-related bonds, a condominium warranty bond requires a signed general indemnity agreement from the developer and its owners.
5. Pay and receive the bond. The bond is issued with the surety's power of attorney, ready to file with DHCD.
6. File with DHCD. Submit the original bond to DHCD's Rental Conversion and Sale Division when the registration order is issued, or have the title company forward it.

Requirement details

Bond vs. letter of credit

DC accepts a bond, a letter of credit, or another form the Mayor approves. A letter of credit usually reduces the developer's borrowing capacity for the full warranty period, and cash ties up capital. A surety bond keeps credit lines open for the next project, which is why most active DC developers choose one.

Bond amount and cost overruns

The bond starts at 10% of the estimated hard costs in the developer's sworn statement. At substantial completion, the project architect certifies actual labor and material costs. If those costs exceed the estimate by more than 10%, the developer posts additional security equal to 10% of the difference. Accurate estimates at registration help avoid a second filing.

Term and renewal

The bond must be automatically renewable and can expire only with the Mayor's permission. It stays in place while any structural defect claim is pending. Developers should plan for the bond to remain active until the last unit's two-year warranty ends and DHCD approves the release.

Reductions and release

Starting two years after each unit is conveyed, the developer may request a pro rata reduction. The bond can't fall below 50% of the original amount until one year after control passes to the owners' association. Five years after the first residential sale, unsold units can be sold as resale units, and the bond is reduced for those units, as long as control passed to the owners at least one year earlier.

Claims: what the bond covers

• What's covered: structural defects in a unit or the common elements, including failures to comply with the building code that harm health or safety
• Who can claim: a unit owner or the unit owners' association
• Warranty period: two years from a unit's first sale for that unit; for common elements, two years from the later of the first unit sale or their completion
• Notice first: the claimant must send the developer written notice by certified mail at least 30 days before filing with the Mayor
• Developer response: the developer has 30 days after receiving the claim to respond in writing to the Mayor
• What's paid: the Mayor sets the repair or replacement cost and releases funds within 30 days after the required forms are complete
• Appeals and lawsuits: any party may seek review by the Office of Administrative Hearings within 30 days, and breach of warranty suits must be filed within five years after the warranty period began
• Developer’s obligation: a bond isn't insurance for the developer. If the surety pays a claim, the developer must repay it. Agents should make this clear to clients before issuance

Sources:

• D.C. Code § 42-1904.03 — Registration application contents
• D.C. Code § 42-1904.08 — Conversion condominiums
• D.C. Code § 42-1904.12 — Administration of registration
• D.C. Code § 42-1903.16 — Warranty against structural defects
• D.C. Code § 42-3402.02 — Conversion certification
• D.C. Code § 42-3402.03 — Tenant election
• D.C. Code § 42-3402.04 — Conversion fee
• DHCD Rental Conversion and Sale Division
• SMART Settlements — DC Condo Conversions