ASE Insurance Agency (UK) Limited

Collateral Warranties Explained

 

  • Introduction

     

    Introduction

    This is a brief introduction to collateral warranties and covers the following common questions raised about them:

    What are collateral warranties?
    Why do they exist?
    What are the common issued relating to collateral warranties?
    Are there any alternatives?

    We also set out below a checklist of things to consider when reviewing/entering into a collateral warranty.

    What are Collateral Warranties?

    A contract that is separate to and alongside (i.e. collateral to) the construction contact of the professional appointment.

    They give third parties (such as funders of the project, purchasers and tenants) a contractual right to sue the provider of the warranty in circumstances where there would be no such contractual right.
    They warrant that the professional has performed services (usually) by reference to the duty of care set out in their contract (and where the project has not yet finished, that they will continue to do so).
    The professional usually receives nothing in return, and in order to make  the warranty an enforceable contract, it is either executed under seal  or there is a promise of nominal consideration from the other party  (e.g. 10).

     

    Collateral_infographic_1

    Give the Employer rights against the consultant which it would otherwise not have.

    Under the collateral warranty, the duties and obligations owed by the  consultant to the main contractor are replicated for the benefit of the  employer. This gives extra protection to the employer as, for example,  if the main contractor enters liquidation, the employer has a direct  contractual link with the sub-contractor

    Distinct From Novation:

    Novation_Infographic

    Upon novation the main contractor steps into the shoes of the design team and assumes responsibility for outline design (typically in design  and build contracts). The contract between the employer and the professional is 'novated' across to the contractor and the professional then owes future duties to the contractor rather than the employer.  However, to ensure that the employer is still owed a duty, typically upon novation a collateral warranty will be entered into between the employer and professional.

    Upon novation, and in the absence of a collateral warranty, the employer only has a contractual remedy against the contractor and not the professional.
     

  • Why do they exist?
  • Common Issues
  • Are there any alternatives?
  • Fundimental Points & Checklist
  • Top 5 Claims Against Engineers

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