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 4 King’s Bench Walk
Published on LexisPSL on 21/10/2016

The following Construction Q&A produced in partnership with Georgia Whiting of 4 King’s Bench Walk provides comprehensive and up to date legal information covering:

  • 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?

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?

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

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