Completion guaranties are an essential component to any commercial real estate financing wherein loan proceeds are used to fund construction work at the subject property. This holds true for ground-up construction financings and significant property redevelopments, but also in other instances when only a portion of the lender’s proceeds are being used to fund smaller scale improvement projects. In any instance, no commercial real estate lender wants to foreclose on collateral that can’t be utilized to its full potential because of incomplete work.

There are many considerations at play and several thoroughly negotiated provisions involved in standard completion guaranties. One threshold question is the scope of the work which is being guaranteed and the status of completion required by the lender; essentially, at what point is the guarantor “off the hook”? This is, of course, a deal-specific inquiry, but one common theme is whether “substantial” or “final” completion releases the guarantor from liability.

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