Collateral Warranties in Construction Law

Collateral warranties were introduced in recent years to create legal relations (and the ability to sue) between third parties to construction contracts (e.g. funders, purchasers, tenants) and the contractors, consultants and key sub-contractors.

It was hoped that the Contracts (Rights of Third Parties) Act 1999 (the “Act”) would see an end to this process, since it would allow contractors, consultants and sub-contractors to include provisions in the construction contracts giving those third parties the same rights that they would traditionally have had under the collateral warranties.

To date it has however become standard practice to exclude the Act from all construction contracts on the basis that (1) the Act is too wide and it might unintentionally give legal rights to more people than originally envisaged, (2) step-in provisions would not work, making them unable to complete the development if the development went insolvent and (3) there is a simple reluctance by anyone to be the first to start using the Act and dispense with collateral warranties.

However, that does now seem, finally, to be changing. The Act first made its emergence in the 2005 edition of the JCT contracts, and the BPF consultancy agreement has followed suit. The use of third-party rights has also been endorsed by the Construction Law Committee of the Law Society, and it seems that the relatively straightforward procedures available under the Act are starting to sink in.

We will provide an update of the position in due course but, in the meantime, if you require any construction law advice on appointments and collateral warranties or if you need any advice when the Act comes into play then please do let us know.

Please note: the contents of the Cumberland Ellis News Bulletin are designed for guidance only and is not intended to be a substitute for detailed legal advice. Consequently, whilst every care is taken to ensure that the information is accurate, we cannot accept responsibility for any liability to any person as a result of any errors or information which is found to be misleading.