Collateral Warranties and Third Party Rights

Question 1

Name 3 key facts of CWs

Answer 1

• under the doctrine of privity of contract in English law only those who are party to a contract can sue for breaches of the contractual obligations
• a collateral warranty enables an extension of the contractural obligations to a third party, a duty of care
• CWs create extended liability therefore an Architect should check terms with PIIs to ensure cover is provided

Question 2

Employers often request CWs from consultants and contractor to be provided for who? (3)

Answer 2

• any funder
• any buyer
• any tenant (number of tenants)

Question 3

Why may Employers request CWs from consultants and contractor?

Answer 3

• CWs improve marketability of the project and prospective buyer/purchaser gains
• CWs provide security for funder if develop were to become insolvent - CWs may include ‘step-in rights’ which allow the beneficiary to step into the role of the Client

Question 4

Why are ‘step-in rights’ important?

Answer 4

• For example: banks providing funding for a project, enables the to ensure that the project is completed if the Client became insolvent

Question 5

What does The Contracts (Rights of Third Parties) Act 1999 do?

Answer 5

• effectively abolishes privity of contract enabling a person not party to the contract to enforce it’s terms

Question 6

Under The Contracts (Rights of Third Parties) Act 1999 how is the third party defined?

Answer 6

• must be expressly identified:
• in the contract by name
• as a member of a class or
• as answering a particular description, but does not need to be in existence when the contract is entered into