Agreements for lease with development obligations—collateral warranties and third party rights
Agreements for lease with development obligations—collateral warranties and third party rights

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Agreements for lease with development obligations—collateral warranties and third party rights
  • Inherent defects
  • Contracts (Rights of Third Parties) Act 1999
  • Warranties and nominations

An inherent defect may become apparent several years after the tenant has taken over the property. This may be long after:

  1. the building contractor’s liability under the building contract to make good defects has expired, and

  1. the developer has been released from liability under its building obligations in the agreement for lease

Inherent defects

Inherent defects tend to be attributable to defective work on the part of:

  1. a member of the professional team

  2. the building contractor

  3. a specialist sub-contractor, or

  4. some combination of them

However, the tenant will have had no direct contractual relationship with any of them, and faces the difficult task of establishing a duty of care in tort. That difficulty is compounded by the fact that the tenant’s loss is almost certainly purely economic and subject to complex rules regarding foreseeability and whether it is fair and reasonable to impose liability.

By contrast, a collateral warranty provides an occupational tenant with a directly enforceable promise from a consultant, contractor or sub-contractor that it has complied with the terms of its original appointment or contract and has exercised reasonable skill and care in performing its obligations under that agreement.

Contracts (Rights of Third Parties) Act 1999

Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999) produces an equivalent outcome by allowing the tenant to be nominated as