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Collateral Warranties & Third Party Rights

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Forbes Solicitors' commercial construction lawyers can provide advice on collateral warranties and third party rights for construction projects of any size and can provide specialist advice to ensure your rights are protected.

When it comes to collateral warranties and third party rights in construction contracts, there are various legal factors that need to be considered, which is where our expert construction solicitors are able to assist you further.

A collateral warranty provides a funder, employer, tenant or purchaser with a direct contractual link with a consultant, contractor or subcontractor who is working on their project, but not directly for them. If you are a funder, employer, tenant or purchaser, this added level of security protects your interests in a project should there be any issues with the progress of the works or in the event of defects in the works by a consultant, contractor or subcontractor.

Third party rights have very similar effects as collateral warranties (creating that direct right of action) but go about it in a slightly different way. The Contract (Rights of Third Parties) Act 1999 (the "Act") creates an exception to the privity of contract rules. The Act allows a third party to enforce the terms of a contract, even though it is not a party to it. In order to do this, the third party must be sufficiently identified in the contract and the rights being conferred must be sufficiently identified in the contract.

Our legal team possesses extensive knowledge and expertise in providing top-notch commercial legal services and support to clients in the construction industry. Contact us now to connect with our solicitors.

Additional Information

What is the difference between collateral warranties and third party rights?

Whilst they both achieve the same goal of giving direct recourse, one obvious difference between these two options is that with third party rights, nothing needs to be signed by the warrantor. Provided the contract caters for third party rights sufficiently, the sending of a notice is sufficient to grant the rights. Whilst both are used, collateral warranties are still more common than third party rights due to collateral warranties being a written document which has been signed by the parties.

Why are collateral warranties important?

Ordinarily, only a party to a contract is entitled to enforce said contract. Therefore, if for example a subcontractor were to commit a breach of its subcontract (with the contractor), and that breach adversely impacted on the employer, an employer would be unable to enforce the same. That creates a problem for the employer. In addition, if the employer identifies defects in the subcontract works, in the absence of a collateral warranty the employer would have no realistic contractual recourse against any party. In the absence of that contractual link, the employer would have to rely on a claim in negligence. This is not desirable as it would require the employer to establish that the subcontractor owed it a duty of care before its claim was even considered. Even if successful, the employer would also be limited as to what it could recover in negligence. Collateral warranties are therefore used to bridge the contractual gap and create a direct contractual link for the benefit of those parties that may otherwise have no recourse.

How can I ensure collateral warranties are provided?

You should ensure that the parties involved in your project have contracts or appointments which include an obligation to provide collateral warranties to the third parties that require or may require them. Our expert construction solicitors can help carefully draft contracts to ensure collateral warranties are provided and can provide advice where necessary.

Who should give you a collateral warranty?

Parties that regularly provide collateral warranties to third parties on a construction project include main contractors, consultants (usually those with responsibility for design including the architect and engineers and also those with no design responsibility, e.g. project manager) and sub-contractors.