Q&As

How do I draft a guarantee that is limited in time or expires on a particular date?

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Produced in partnership with Richard Hanke of 3 Verulam Buildings (3VB)
Published on LexisPSL on 17/02/2017

The following Banking & Finance Q&A Produced in partnership with Richard Hanke of 3 Verulam Buildings (3VB) provides comprehensive and up to date legal information covering:

  • How do I draft a guarantee that is limited in time or expires on a particular date?
  • Is it possible to draft a guarantee limited in time and/or with a specific expiry date?
  • Determining the aim of the limitation
  • Examples from case law
  • Risks for creditors

Is it possible to draft a guarantee limited in time and/or with a specific expiry date?

A creditor and a guarantor are free to agree that a guarantee is limited to liabilities incurred before a particular time or that it will expire upon a particular date. Such guarantees are, however, atypical. Guarantees are usually intended to provide security in respect of a particular transaction or loan, or are intended to be continuing in nature. Both of these categories of intentions could be prejudiced if the guarantee were to expire upon a particular date. Accordingly, if the parties wish to impose a time limitation or expiry date upon a guarantee, care should be taken to ensure that this is reflected in clear and unequivocal terms in order to minimise the risks of any possible dispute. Whether or not the language used successfully limits the guarantee will then be determined in accordance with the ordinary principles of contractual interpretation. The absence of a provision that the guarantee will continue until cancelled by the creditor would therefore be insufficient to impose a limitation and express words should be used. 

Determining

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