Sei sulla pagina 1di 2

Collateral warranties for building design and construction

For a detailed legal definition ofcollateral warrantiessee:Definition of collateral warranty.

Collateral warrantiesare agreements which are associated with another 'primary' contract. They provide for aduty of
careto 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 thatdefectsin buildings were not recoverable intort, as they
were an economic loss which was only recoverable through a contractual relationship.Collateral warrantiestherefore
create direct contractual relationships between parties that would not otherwise exist.
A typical example would be where anarchitectof a new office development owes aduty of careto an occupier of the
development in so far as any subsequentdefectswhich may arise are concerned.Privity of contractrules would
prevent any liability arising between thearchitectand occupier without the existence of acollateral warranty.
There may also be a contractual requirement for parties to obtain further warranties, for example there may be an
obligation for themain contractorto obtaincollateral warrantiesfromsub-contractors.
Collateral warrantiesmay include 'step-in' rights allowing the beneficiary to step-into the role of theclient. This can be
important, for example to banks providing funding for a project, enabling them to ensure that the project is completed if
theclientbecomesinsolvent.
There are a number of standard forms ofcollateral warranty(such asJoint Contracts Tribunal(JCT)collateral
warranties), however there can be somedisputeabout their specific terms, withclientsoften claiming that industry
standard warranties favourcontractorsanddesigners. There can also be difficulties with onerous terms
thatdesignersorcontractorsare unable to agree to as their insurers will not provide cover. As a consequence
manycollateral warrantiesare bespoke.
One of the disadvantages ofcollateral warrantiesis the difficulty in actually completing them. On large projects with
manyconsultantsandsub-contractorsand multiple occupants, there can be a great number of warranties.The
Contracts (Rights of Third Parties) Actcan 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.

Contents
[hide]
1Parkwood
Leisure Limited v
Laing

2Find out more


o
2.1Relate
d articles on
Designing Buildings
Wiki
o
2.2Extern
al references

Parkwood Leisure Limited v Laing


In the case ofParkwood Leisure Limited v Laing ORourke Wales and West Limitedin 2013, the judge found that
Parkwoodscollateral warrantywas aconstruction contractas the definitions were widely construed andThe Housing
Grants, Construction and Regeneration Actapplies to all contracts related to the carrying out of construction
operations.
The courts decision is an unexpected one for practitioners who assumed the Act did not apply to warranties.

Collateral warrantieswill now be subject to greater scrutiny in the light of this case. We may now see a resistance
amongcontractorsandconsultantsto 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 ActsScheme for Construction Contractsand payment
provisions to warranties considered to beconstruction contracts.
The upshot of this could now see the rise ofthird party rightsas 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?

Find out more

Potrebbero piacerti anche