Step-in rights in a collateral warranty

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

  • Step-in rights in a collateral warranty
  • What are step-in rights?
  • Which parties receive step-in rights?
  • Typical step-in rights mechanism

Step-in rights in a warranty'>collateral warranty

It is standard practice in construction projects for the contractor, key sub-contractors and consultants (referred to in this Practice Note as warrantors) to provide collateral warranties to various parties, including funders and purchasers (referred to in this Practice Note as beneficiaries). See Practice Note: What are collateral warranties?

The collateral warranty creates a direct contractual link between the beneficiary and the warrantor, without which the beneficiary would not have any right to claim from the warrantor in the event that it fails to properly perform its obligations under the building contract, sub-contract or appointment (as appropriate). A collateral warranty will contain an undertaking in respect of the obligations in the underlying contract, as well as dealing with matters such as copyright licences, assignment, professional indemnity insurance, and in some cases will included a step-in rights clause. This Practice Note explains what such step-in rights are, which parties will typically be granted step-in rights in a construction project, and looks at the typical mechanism for activating step-in rights.

As well as collateral warranties, it is also typical to find step-in rights in development agreements (for an example of a step-in clause for a development agreement, see Precedent: Step-in rights clause). Step-in rights are also the key focus of direct agreements such as those provided in PFI/PF2 projects, see Practice Note: Direct agreements

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