Deed of Guarantee 2023 (guide + free template)

This post covers everything you need to know about a deed of guarantee

Here you will learn

  • What is a deed of guarantee
  • Why deed of guarantee is necessary
  • Things to Consider Before Guaranteeing a Loan
  • How to draft a valid deed of guarantee
  • deed of guarantee template
  • etc.

let’s get started

What is a deed of guarantee

A deed of guarantee refers to the binding agreement between a person (guarantor) and a financial institution (mortgagee) to assume responsibility for another person’s (mortgagor) mortgage obligations in the event of that person’s default.

A deed of guarantee is typically employed when a lender has concerns regarding a borrower’s capacity to repay mortgage installments and calls for the loan to be guaranteed by a second party, typically one who is in a stronger financial position.

Why deed of guarantee is necessary

The guarantee deed is required to make a third party personally liable for repaying the guaranteed amount, hence reducing the chance of the loan not being repaid.

For example;

A party (the borrower) obtains financing from a lender (the beneficiary).

The beneficiary will seek to have a third party (the guarantor), who may be an individual or a business, guarantee this agreement.

In this agreement, the guarantor guarantees that the borrower will fully fulfill all of its commitments to the beneficiary.

If a borrower breaches the terms of the agreement with the lender and a deed of guarantee and indemnification is in place, the guarantor will be held accountable for fulfilling the obligations on the borrower’s behalf.

If the lender has any doubts regarding the borrower’s ability to repay the loan, they will frequently try to incorporate a deed of guarantee and indemnity.

Things to Consider Before Guaranteeing a Loan

A deed of guarantee carries a lot of legal duties and responsibilities.

To be on the safe side, Determine the borrower’s identity and the likelihood of repayment default before agreeing to act as guarantor.

You might be in a high-risk situation if, for instance, they have a poor credit rating, which may signal they are more likely to default.

Make sure what you are actually promising is crystal clear.

You might be providing a guarantee for all payments due under the loan arrangement, which would probably include interest and indemnification fees.

Furthermore, you could also be responsible for the borrower’s non-financial duties, such as telling the lender certain details.

Before agreeing to act as a guarantor, you must make sure you are in a sound financial situation. You can be obligated to make a sizable payment in the event that the borrower defaults.

Finally, if the guarantor fails to make the needed payments, they may have to liquidate assets or take out a mortgage on their property in order to make the obligations.

How to draft a valid deed of guarantee

To draft a legally accepted deed of guarantee you have to clearly outline the terms and conditions of the transaction so that both parties are aware of what they are signing.

To be enforceable your agreement must comply with the law of your state.

The following are the things that you should write in your deed of guarantee.

  1. Title of the document i.e DEED OF GUARANTEE
  2. Date of the agreement
  3. the names and addresses of the guarantor
  4. the names and addresses of the lender
  5. Description of the mortgage
  6. Description of the mortgaged property
  7. Governing law clause
  8. signatures of the guarantor and lender
  9. Witness

A deed of guarantee must be signed by the guarantor in the presence of a witness in order to be validly executed.

The document must be signed by the witness as well. In order for the guarantor to understand the obligations that they are covering, they must be given a copy of the mortgage deed and it must be attached to the guarantee deed.

Deed of Guarantee template

DEED  OF  GUARANTEE

By THIS DEED dated the …………. day of …., 20…

[name of guarantor of [address] (hereinafter called “the Guarantor”) HEREBY firmly binds himself to [name of the lender] of [address] (hereinafter called “the Lender”) as hereunder:

IN CONSIDERATION of the Lender granting to [name of the borrower] (hereinafter called “the Borrower”) a loan facility of an unspecified amount to be repaid within the time limit more specifically specified in the Loan Agreement between the Lender and the Borrower.

the Guarantor HEREBY MORTGAGES his property comprised in ALL THAT piece or parcel of land known as Plot No…….Block……….. for the Lender to hold the said property as security for repayment of the said loan.

All notices, demands and other communications to the Guarantor shall be made in writing (by letter or fax) and shall be sent to the Guarantor at:

[GUARANTOR ADRESS]

Every notice, demand or other communication sent in accordance with provisions of this deed shall be effective upon receipt by the Guarantor, provided that any such notice, demand or other communication which would otherwise take effect after 4.00 p.m. on any particular day shall not take effect until 10.00 a.m. on the immediately succeeding business day in the place of the Guarantor.

This Deed of Guarantee and any non-contractual obligations arising out of or in connection with it are governed by, and shall be construed in accordance with [state] law

IN WITNESS WHEREOF the Guarantor has set his hand hereunto and signed these presents the day, month, and year hereinafter appearing.

Buyer’s Signature: ________________________ Date: ______________

Seller’s Signature: ________________________ Date: ______________

GUARANTOR WITNESSES:

  1. [NAME] [SIGNATURE] [DATE]
  2. [NAME] [SIGNATURE] [DATE]

LENDER WITNESSES

  1. [NAME] [SIGNATURE] [DATE]
  2. [NAME] [SIGNATURE] [DATE]

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Isack Kimaro
Isack Kimaro

Editor-in-chief and founder of sherianajamii.com. Holder of Bachelor of Laws (LL.B) and Post Graduate Diploma in Legal Practice. Lawyer by profession and blogger by passion