Readers of our insight Top Five Considerations for Every Guarantee will have seen that planning guarantee provisions before drafting can bring both cost and time benefits. However, in the heat of a transaction, parties may turn their focus to the main deal documents (e.g. sale, development or loan agreements) which carries the risk that equal emphasis isn't given to the content of guarantees.
Ultimately, if a transaction goes sour and as many court cases have shown, that lack of emphasis can lead to litigation and potentially, parties either being unable to recover under a guarantee, or discovering that their liability under one was far greater than expected.
If you want to be certain that you can rely on a guarantee, it's crucial to understand what that guarantee says and allows you to do before it is signed. And if you are the guarantor, understanding what liability could come your way and when, is crucial to avoid any nasty shocks in the future.
So how can you go about ensuring that a guarantee covers what you expect? One way is to consider some key commercial questions at an early stage, so that the correct terms can be drafted into the document. Heads of terms are usually considered for key documents and given the importance of guarantees, it makes commercial sense to consider a similar approach for them too.
To assist, we have produced two checklists. One for guarantee beneficiaries and one for guarantors. These provide many of the key considerations in a parent guarantee type situation and are also useful in other scenarios, as many of these considerations are common across different types of guarantee.
Whilst no checklist can be completely exhaustive, we hope that you find these useful. However, if you are unsure how to approach a guarantee, please contact one of our experts who would be happy to assist.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
