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Collateral Warranties – Question:

“Somebody has told me we can avoid collateral warranties on our next project, by using the rights of third parties act. Is that a good idea or should we avoid it?” 


It depends on what is meant by ‘avoid’.   Collateral warranties and third party rights have many similarities and should be seen as alternative options; intended to achieve the same result.    

A collateral warranty is a contract. It sits alongside an underlying contract usually a building contract, consultant appointment or subcontract.  Most collateral warranties refer to the duties and obligations in the underlying contract. They warrant that the contractor, consultant or subcontractor (for these purposes the ‘warrantor’) has performed and/or will perform those obligations for the benefit of a third party.  The warranty creates a contractual link between the warrantor and a third party such as a purchaser, tenant or funder. It entitles the identified third party to rely upon the promises in the warranty and bring a claim for breach of contract… 

You can read the full article here. Should you need help with a similar problem, please don’t hesitate to get in contact with us today.