Q&As

Pursuant to an agreement for lease, a landlord is constructing a building for the tenant and has provided collateral warranties to it from the professional team. The landlord is now intending to mortgage the freehold simultaneously with completion of the lease at practical completion. Does the landlord need to procure new collateral warranties in favour of the bank as presumably the tenant wouldn’t permit assignment of those in its favour? Also, there is a novation agreement attached to the consultant’s letter of appointment (allowing for novation to the contractor)—how will this sit with the lender?

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Produced in partnership with Georgia Whiting of Ardmore Group Limited
Published on: 21 October 2016

This Q&A considers the likely approach that a lender will take in respect of collateral warranties and novation, in the context of a landlord constructing a building to be leased to a tenant, where the landlord wishes to obtain a mortgage over the freehold.

As a result of the doctrine of privity of contract, collateral warranties are often necessary in construction projects in order to protect third parties with an interest in that project. Privity essentially means that a person may

Georgia Whiting
Georgia Whiting

In-House Legal Counsel, Ardmore Group Limited

Georgia is employed as Legal Counsel at the Ardmore Group, a large family owned and operated construction contractor. Her role is varied and includes both contentious and non-contentious matters. 

Prior to this, she was a self-employed barrister at 4 King’s Bench Walk, where she remains as a Door Tenant. Her work included advising and acting in relation to issues arising out of construction, property development and refurbishment. 

Her common law background also enables her to advise in respect of linked areas relating to property and construction and associated litigation, such as employment, insolvency and negligence. Her time at a City Law Firm prior to obtaining Pupillage also equipped her with an understanding of commercial realities from multiple perspectives.

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Jurisdiction(s):
United Kingdom
Key definition:
Collateral definition
What does Collateral mean?

Assets put up as security to protect a tender in case the borrower defaults.

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