Real estate development finance—introductory guide to collateral warranties

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Real estate development finance—introductory guide to collateral warranties
  • What is a collateral warranty?
  • Using collateral warranties in real estate development facilities
  • Collateral warranties provided directly to the lender
  • Collateral warranties provided to the borrower
  • The rights conferred by collateral warranties
  • Right to sue the warrantor
  • Step-in rights

Real estate development finance—introductory guide to collateral warranties

Collateral warranties are some of the most important documents in real estate finance development facilities. They are provided by the key members of the development team to each of the lender and the borrower.

They provide a contractual link were there wouldn't normally be one and often include important step-in rights for a lender or borrower (as applicable).

This Practice Note explains:

  1. what collateral warranties are

  2. how collateral warranties are used in real estate development facilities, and

  3. the rights conferred by collateral warranties

What is a warranty'>collateral warranty?

A collateral warranty is a contract which is collateral to (or sits alongside) an underlying contract. In the context of real estate development facilities, collateral warranties typically sit alongside the key development documents (see Practice Note: Real estate development finance—introduction to the development documentation).

The collateral warranty creates a contractual link where there wouldn't normally be one, thereby enabling a third party to have a direct contractual relationship with the key members of the development team. The third party can then rely upon the undertakings contained in the collateral warranty in order to bring an action in contract against the warranting party (the warrantor) if there has been a breach.

Without a direct contractual relationship, the third party would be unable to sue in contract and would have to rely upon a claim in tort.

Popular documents