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    Collateral Warranty

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    baaquir
    Collateral warranties create contractual relationships between parties not originally party to a primary contract. They extend duties of care from those involved in construction projects to third parties like building occupants. For example, an architect may owe a duty of care through a collateral warranty to the occupiers of a new development they designed. A 2013 court case established that collateral warranties fall under construction contract law, subjecting them to greater legal scrutiny. This may lead contractors and consultants to resist granting warranties or restrict their scope to limit retrospective liability. It could also increase the use of third party rights as an alternative to warranties.

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    Collateral Warranty

    Uploaded by

    baaquir
    171 views2 pages
    Collateral warranties create contractual relationships between parties not originally party to a primary contract. They extend duties of care from those involved in construction projects to third parties like building occupants. For example, an architect may owe a duty of care through a collateral warranty to the occupiers of a new development they designed. A 2013 court case established that collateral warranties fall under construction contract law, subjecting them to greater legal scrutiny. This may lead contractors and consultants to resist granting warranties or restrict their scope to limit retrospective liability. It could also increase the use of third party rights as an alternative to warranties.

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    Collateral warranty

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    Collateral warranties create contractual relationships between parties not originally party to a primary contract. They extend duties of care from those involved in construction projects to third parties like building occupants. For example, an architect may owe a duty of care through a collateral warranty to the occupiers of a new development they designed. A 2013 court case established that collateral warranties fall under construction contract law, subjecting them to greater legal scrutiny. This may lead contractors and consultants to resist granting warranties or restrict their scope to limit retrospective liability. It could also increase the use of third party rights as an alternative to warranties.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    171 views2 pages

    Collateral Warranty

    Uploaded by

    baaquir
    Collateral warranties create contractual relationships between parties not originally party to a primary contract. They extend duties of care from those involved in construction projects to third parties like building occupants. For example, an architect may owe a duty of care through a collateral warranty to the occupiers of a new development they designed. A 2013 court case established that collateral warranties fall under construction contract law, subjecting them to greater legal scrutiny. This may lead contractors and consultants to resist granting warranties or restrict their scope to limit retrospective liability. It could also increase the use of third party rights as an alternative to warranties.

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    Introduction

    Collateral warranties are agreements which are associated with another 'primary' contract.
    They provide for a duty of care to be extended by one of the contracting parties to a third
    party who is not party to the original contract.

    They came into being as a result of the courts deciding that defects in buildings were not
    recoverable in tort, as they were an economic loss which was only recoverable through a
    contractual relationship. Collateral warranties therefore create direct contractual relationships
    between parties that would not otherwise exist.

    A typical example would be where an architect of a new office development owes a duty of
    care to an occupier of the development in so far as any subsequent defects which may arise
    are concerned. Privity of contract rules would prevent any liability arising between the
    architect and occupier without the existence of a collateral warranty.

    There may also be a contractual requirement for parties to obtain further warranties, for
    example there may be an obligation for the main contractor to obtain collateral warranties
    from sub-contractors.

    Collateral warranties may include 'step-in' rights allowing the beneficiary to step-into the role
    of the client. This can be important, for example to banks providing funding for a project,
    enabling them to ensure that the project is completed if the client becomes insolvent.

    There are a number of standard forms of collateral warranty (such as Joint Contracts Tribunal
    (JCT) collateral warranties), however there can be some dispute about their specific terms,
    with clients often claiming that industry standard warranties favour contractors and designers.
    There can also be difficulties with onerous terms that designers or contractors are unable to
    agree to as their insurers will not provide cover. As a consequence many collateral warranties
    are bespoke.

    One of the disadvantages of collateral warranties is the difficulty in actually completing them.
    On large projects with many consultants and sub-contractors and multiple occupants, there
    can be a great number of warranties. The Contracts (Rights of Third Parties) Act can offer a
    way around this difficulty by allowing the primary contracts to confer benefits upon third
    parties even though they are not a party to that contract.
    See also Practical considerations of collateral warranties.

    For a detailed legal definition of collateral warranties, see Definition of collateral warranty.

    Parkwood Leisure Limited v Laing

    In the case of Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited in 2013,
    the judge found that Parkwood’s collateral warranty was a construction contract as the
    definitions were widely construed and The Housing Grants, Construction and Regeneration
    Act applies to all contracts related to the carrying out of construction operations.

    The court’s decision is an unexpected one for practitioners who assumed the Act did not
    apply to warranties.

    Collateral warranties will now be subject to greater scrutiny in the light of this case. We may
    now see a resistance among contractors and consultants to grant warranties and a desire to
    perhaps restrict the number and scope of warranties so that their application is limited to be
    retrospective only. That inevitably means further complications for the negotiation and
    drafting of warranties resulting in protracted and costly negotiations.

    The decision also raises speculation as to the application of the Act’s Scheme for
    Construction Contracts and payment provisions to warranties considered to be construction
    contracts.

    The upshot of this could now see the rise of third party rights as circumventing the issues
    arising from this case. Could this spell the end of the widespread use of warranties which
    may finally be falling out of favour?

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