Please find below a note from our resident expert, Steve Maskell, providing some detail surrounding the termination of guarantees.
Guarantees - Termination
Many guarantees incorporate a termination clause which enables the guarantor to crystallise his or her liability. Bank guarantees in particular contain such clauses as standard. Notice of termination should always be given in the manner specified in the guarantee. Typically notice will be required in writing which in the absence of wording to the contrary includes fax and email.
Termination clauses usually stipulate the notice period which will often be anything between one and three months. That then gives the lender time to find substitute security. If substitute security is not available then the lender must take steps to preserve the benefit of the existing guarantee by making demand before the notice period expires.
The demand will have the effect of crystallising the guarantors liability save that the guarantee will usually provide that the amount demanded will attract interest from the date of demand until payment at the rate specified in the guarantee or at the rate being applied to the account of the person or company whose debts have been guaranteed.
Failure to make demand before the notice period expires can have catastrophic consequences for the lender as was amply illustrated in the case of National Westminster Bank plc v David Hardman (Court of Appeal 1987).
For further information please contact Steve Maskell
7 October 2015 By Steve Maskell