What is a Concessionaire Bond?
Concessionaire bonds are a subset of the broader miscellaneous bond category that must be filed with the entity requiring the bond as a stipulation to a concessionaire agreement. Concessionaires use a piece of land or commercial premises as allowed by a concessionaire agreement to sell goods and/or services. Examples of concession holders are operators of mall kiosks or individuals selling food or beverages at sporting events.
Concessionaire bonds must be issued by insurance carriers admitted in the state where the bond is required. The insurance carrier issuing any surety bond will also be referred to as the “surety company” or the “bond company”. Concessionaire bonds refer to the concession holder as the Principal, the surety bond company as the Obligor and the the entity requiring the bond as the Obligee.
Why is a Concessionaire bond required?
Concession owners are required to purchase concessionaire bonds as a stipulation to a concessionaire agreement to protect the owner of the property by transferring to a surety bond company the cost of ensuring the land owner is compensated for damages resulting from a concession holder breaking the concessionaire agreement. The surety company provides the obligee a guarantee (the surety bond) for financial damages due to a violation of the concessionaire’s agreement up to a limit specified in the bond (“penal sum” or “bond amount”). Ultimately, concessionaires are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face civil action.
Concessionaire bond violations triggering a bond payout may include a concession holder failing to pay rent and or fees imposed by the concession grantor, acting in violation of the concession agreement, or engaging in dishonest or fraudulent business practices .
How much does a Concessionaire bond cost?
Concessionaire bonds generally cost between 2% and 8% of the bond limit.
Example: $10,000 Concessionaire Bond Cost
| Credit Score | Premium Rate | Bond Cost |
|---|---|---|
| 680 or above | 2.0% | $200 |
| 650-675 | 2.5% | $250 |
| 600-649 | 4.0% | $400 |
| 550-599 | 7.5% | $750 |
| 500-549 | 8.0% | $800 |
The actual cost of a specific concessionaire bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form, concessionaire agreement, and the applicant’s experience and creditworthiness.
Is a Credit Check Required for Concessionaire Bonds?
Credit checks are required for concessionaire bonds. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.
How does the wording in the bond form impact the cost of a Concessionaire bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and concession holder (principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the concessionaire via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a concessionionare bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.
Aggregate Limits
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 concessionaire bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Concessionaire bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.
Cancellation Provisions
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the concession holder and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the concession holder failing to pay premiums due, claim payouts, or material changes in the holder’s credit score. Concessionaire bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.
Forfeiture Clause
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Concessionaire bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.