Guarantee Facility Agreement Template for the United Arab Emirates
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What is a Guarantee Facility Agreement?
The Guarantee Facility Agreement is a crucial financial instrument in the UAE business environment, particularly used when companies require ongoing bank guarantee support for their business operations. This document, governed by UAE law and regulated by the UAE Central Bank, establishes a framework under which a financial institution can issue multiple guarantees on behalf of a borrower up to an agreed facility limit. The agreement is essential for businesses engaged in government contracts, construction projects, or international trade where bank guarantees are required as security or performance bonds. It contains detailed provisions on facility limits, issuance procedures, fees, security requirements, and enforcement mechanisms, all structured to comply with UAE Civil Code requirements for guarantees and the UAE Commercial Code's banking provisions.
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About the Guarantee Facility Agreement
A Guarantee Facility Agreement is a comprehensive financial contract that enables your business to access ongoing bank guarantee services from a financial institution under predetermined terms and conditions. Under UAE law, this agreement creates a legal framework where banks can issue multiple guarantees on your behalf without requiring separate approval for each guarantee, provided they fall within the agreed facility limits and terms.
When do you need this document?
You need a Guarantee Facility Agreement when your business regularly requires bank guarantees for various commercial activities. This is particularly common for construction companies bidding on government projects that require performance bonds, trading companies engaged in international commerce requiring letters of credit support, or service providers participating in public tenders that mandate bid guarantees. The agreement is also essential for businesses with ongoing contractual obligations that require continuous guarantee coverage, such as rental deposits, utility connections, or customs guarantees for import/export activities.
Key legal considerations
Several critical legal elements must be carefully structured in your Guarantee Facility Agreement. The facility limits and sublimits must be clearly defined to prevent disputes over guarantee issuance authority. Security provisions, including personal guarantees from directors or corporate guarantees from parent companies, must comply with UAE Civil Code requirements for enforceability. Fee structures, including issuance fees, annual facility fees, and amendment charges, should be transparently documented. The agreement must specify conditions precedent for guarantee issuance, such as underlying contract requirements and beneficiary criteria. Additionally, default provisions and enforcement mechanisms must align with UAE commercial law, including rights of set-off and cross-default clauses that protect the bank's interests while providing clear remedies.
Legal requirements in United Arab Emirates
Under UAE Federal Law No. 5 of 1985 (Civil Code), particularly Articles 1057-1093 dealing with guarantees and suretyship, your Guarantee Facility Agreement must meet specific legal standards for validity and enforceability. UAE Federal Law No. 18 of 1993 (Commercial Code) governs the banking aspects, requiring compliance with commercial transaction regulations and banking operation standards. The UAE Central Bank Law (Federal Law No. 14 of 2018) imposes regulatory requirements on financial institutions issuing guarantees, including capital adequacy and risk management standards. Corporate guarantors must have proper authority under UAE Federal Law No. 32 of 2021 (Commercial Companies Law), with board resolutions and signatory powers clearly documented. The agreement must be executed in accordance with UAE notarization requirements if real estate or significant commercial guarantees are involved, and all parties must have proper legal capacity and authority under UAE law.
GOVERNING LAW
Applicable law
This Guarantee Facility Agreement is drafted to comply with United Arab Emirates law. Key legislation includes:
UAE Federal Law No. 18 of 1993 (Commercial Code): Governs commercial transactions and banking operations, including provisions related to commercial guarantees and letters of credit.
UAE Federal Law No. 14 of 2018 (Central Bank Law): Regulates banking activities and financial institutions, including requirements for banking facilities and guarantees issued by banks.
UAE Federal Law No. 32 of 2021 (Commercial Companies Law): Relevant for corporate guarantees and financial obligations of companies, including authority to provide guarantees.
UAE Central Bank Regulations and Circulars: Various regulations governing banking operations, credit facilities, and guarantee arrangements issued by the UAE Central Bank.
UAE Federal Law No. 4 of 2000 (Capital Markets Law): Relevant when the guarantee facility involves listed companies or securities as collateral.
UAE Federal Law No. 20 of 2016 (Pledge of Movable Properties): Applicable when movable assets are used as security in connection with the guarantee facility.
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