“It is covered by a bank guarantee.” A reassuring phrase, but on its own it says very little. A bank guarantee can be a solid safeguard or a very limited one: everything depends on what is written in it. Let us look at what it is, what it is for and how to read it. This guide is general in nature and does not replace the advice of a lawyer.
What a bank guarantee is
A guarantee of this kind is a form of personal security. With a bank guarantee, a bank undertakes to pay a sum to a party, the beneficiary, if another person or company fails to meet a certain obligation.
There are three parties involved:
- the debtor, that is, the party with an obligation to meet, for example the seller or the developer;
- the beneficiary, that is, the party protected by the guarantee, for example the buyer;
- the guarantor, that is, the bank that undertakes to pay if the debtor does not.
What it is for in a property purchase
In property purchases, and particularly off-plan ones, a bank guarantee can serve to protect the buyer with regard to specific commitments made by the seller. For example:
- the repayment of sums paid if the property is not completed or handed over;
- compliance with other contractual obligations specified in the document.
Every guarantee covers only what is written in it. There is no “standard guarantee” that applies to every case. If you are considering buying a property under construction, also read the guide on what to know when buying off-plan.
The four questions to ask
Who issues it?
A guarantee is only as good as the strength of whoever signs it. Ask for the name of the bank issuing it and the country where it is based. Check that it is an authorised bank and not a different entity with a similar name.
What exactly does it cover?
Read which obligation is covered and up to what maximum amount. Does it cover the sums you have paid? Other commitments? All of them or only part? Be wary of vague wording.
For how long?
Every guarantee has a term. Check when it starts, when it expires and whether the expiry date is consistent with the timescale of the commitment covered. A safeguard that expires before the moment you need it is of little use.
How is it called upon?
Ask what steps you need to take to call on the guarantee, that is, to ask the bank to pay: who to write to, within what time limits, with which documents. Some guarantees are payable “on first demand”, others require lengthier steps. The difference is important.
Other useful checks
- Ask to receive a copy of the document, not just a description of it.
- Check that the beneficiary is clearly identified: it should be you, or it should be clear how you are protected.
- Check the language and the governing law, and in which country it would have to be enforced.
- Have everything read by an independent lawyer before you sign the main contract.
Bank guarantees and The View
If you are told that a project, including The View, comes with a bank guarantee, ask the same questions: who issues it, what it covers, for how long and how it is called upon. The financial and contractual terms of The View are set out in the official presentation and in the contract: read them carefully and have them checked by your lawyer.
To understand how the format works as a whole, see the comparison between an apartment and an Apart-Hotel and the guide registered ownership or a share. On safeguards for payments, there is also how to pay for a property abroad.
A final tip
Do not stop at the words “bank guarantee”. Ask for the document, read it with a professional and keep asking questions until everything is clear. We are happy to provide you with the documentation for The View: contact us.
Frequently asked questions
Are a bank guarantee and insurance the same thing?
No. A guarantee is an undertaking by a third party, often a bank, to pay if the debtor fails to meet an obligation. There are also guarantees issued by insurance companies, but the mechanism and the conditions should always be read in the individual document.
What does an “on first demand” guarantee mean?
It generally means that the bank pays on a simple written request from the beneficiary, without being able to raise many objections. This wording is considered more effective for the protected party, but its precise meaning should be checked in the text with a lawyer.
Can I ask to see the bank guarantee before signing?
Yes, and it is advisable to do so. Ask for a copy of the document or the draft and have it examined by a professional you trust before committing yourself.
Is a guarantee issued abroad also valid in my home country?
It depends on the governing law and the rules set out in the document. These aspects should be checked with a lawyer experienced in international transactions.
Would you like to talk it through with a person?
Book a video call or message us on WhatsApp: we will answer your questions about Boa Vista and The View.
