Authors’ Synopsis: Construction loans commonly include a guaranty that the guarantor will cause the completion of the contemplated improvements on time, without liens, and in accordance with the plans approved by the lender. However, very little reported caselaw deals with completion guaranties and none of it is recent. This Article explores typical provisions of completion guaranties and the relevant caselaw. It then provides some suggestions for drafting such guaranties, including an appendix with sample provisions.
The completion guaranty is a familiar feature of modern construction loans. Lenders typically require at least a completion guaranty where they do not have satisfactory full repayment guaranties of the entire loan amount. Often, principals or sponsors of borrowers are not willing to provide full repayment guaranties, but are willing to take on more limited guaranty liability including guaranteeing timely completion of the project and payment of project costs.