Assignment of a collateral warranty
Assignment of a collateral warranty

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

  • Assignment of a collateral warranty
  • Assignment provisions in collateral warranties
  • Why include assignment provisions?
  • Limiting the right to assign
  • Assignment in standard forms

This Practice Note focuses on the assignment of collateral warranties (see Practice Note: What are collateral warranties?). For more detailed guidance on assignment in general, see Practice Notes: Assignment in construction contracts and Legal and equitable assignment in construction contracts. Although this Practice Note refers to collateral warranties, the principles also apply where third party rights are used as an alternative to collateral warranties, see: Contracts (Rights of Third Parties) Act 1999 in construction—overview.

Assignment provisions in collateral warranties

The general rule is that if a contract is silent on the issue of assignment, this means that the benefit of the contract can be assigned without limit or without requiring consent (as permitted by law under section 136(1) of the Law of Property Act 1925 (LPA 1925))—there is no requirement to obtain the consent of the obligor to any proposed assignment. See Practice Note: Restrictions on the assignment of rights in construction contracts.

Most construction contracts contain express assignment clauses to clarify the rights of each of the parties in respect of assignment and this is also usually the case in collateral warranties.

Most commonly, a collateral warranty will state that the beneficiary can assign its interest in a collateral warranty (sometimes subject to obtaining the warrantor’s consent), albeit there is likely to be some restrictions on the number of times the