Cost overrun guarantee

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

A cost overrun guarantee is a promise, usually from the developer's owners or parent company, to pay any project costs above the agreed budget, so that the project can be finished with the agreed loan and equity. It is often capped, at a fixed amount or a share of the budget, and the overrun is usually measured by the lender's quantity surveyor rather than by the developer. A lender values it by the guarantor's actual cash and by what else the guarantor has promised, because overruns tend to arrive across a developer's projects in the same market at the same time.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.