What are collateral warranties?

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

  • What are collateral warranties?
  • What is a collateral warranty?
  • Which parties require collateral warranties?
  • Funders
  • Purchasers
  • Tenants
  • Other beneficiaries
  • Which parties provide collateral warranties?
  • Important elements of a collateral warranty
  • Forms of warranty

What are collateral warranties?

This Practice Note looks at what a warranty'>collateral warranty is, which parties will want collateral warranties on a construction project and why. It considers the usual beneficiaries of collateral warranties and the rights that they acquire against the warrantor concerning the building contract, consultant’s appointment or sub-contract.

It is a general principle of contract law that only a person who is a party to a contract can bring a claim under that contract. This is known as the doctrine of privity of contract. In the absence of any other direct contractual relationship, a contractor or a consultant will not normally owe a contractual duty of care to any person other than its direct client. (Note that the doctrine of privity of contract has, however, been altered by the Contracts (Rights of Third Parties) Act 1999 which, in certain circumstances, permits a party to enforce the terms of a contract made between others for its benefit. For more information see Practice Note: The Contracts (Rights of Third Parties) Act 1999 in construction contracts).

Many of the defects that arise in buildings occur following completion of the works and after the contractor has left the site. Whilst the employer of the construction team will continue to have a contractual right of action against any defaulting parties, by the time the cause of action arises it

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