Collateral Warranties: What you need to know

    The LI sometimes get asked questions about whether members should sign a Collateral Warranty. Signing a Collateral Warranty creates a contractual relationship between the member and the end users and funders of developments (and their successors) where otherwise no contractual relationship would exist. Clients and higher tier contractors will often try to push the boundary of what members are signing up to with the only alternative being not to accept the work. But a warranty which seeks to impose additional guarantees may take the member outside the scope of their professional indemnity cover.

    Because of the potential implications this is an area where members should look to to their professional indemnity insurers for advice. The LI insurers, for example, are geared up to help. They have produced a general explanatory note which explains some of the basic points regarding adjudication, PI, indemnity, deleterious materials and fitness for purpose. They will also provided limited initial advice to members on matters of detail where any collateral warranty seeks to include clauses which are not the same as those in either of the standard (and more PII-“friendly”) forms of agreement produced by the CIC or the National Housing Federation. There is also some useful discussion of practicalities on the Designing Buildings Wiki. Inevitably, though, there may be times where members may find themselves needing further legal advice and comprehensive vetting.  Googling “collateral warranty” certainly pulls up pages from legal practices.

    It would be interesting to hear of where members have successfully encouraged reliance on the provisions of the Contracts (Rights of Third Parties) Act 1999 or any other mechanisms as an alternative to collateral warranties. Please post your experiences on Talking Landscape

    Simon Odell CMLI

    This image ‘Day 207: I’ve Contracted an Agreement’ is by Juli on Flickr, published under the Creative Commons licence.


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