Despite the 1999 Act, collateral warranties remain popular as they are familiar to those within the construction industry and they can impose obligations on, as well as provide rights to, a third party. Third party rights have more restricted use, despite the fact that collateral warranties may on occasion be time consuming and difficult and expensive to negotiate and procure. Third party rights can be incorporated into a contract or a professional appointment so that the parties do not have to create additional agreements in order to establish the rights, which can save time and money. However, given the familiarity and flexibility of collateral warranties within the construction industry, the use of third party rights remains less common. A recent decision by the Technology and Construction Court (see Dispute Resolution below) held that a collateral warranty should be constructed as a “construction contract” for the purposes of the Construction Act, meaning that parties to a warranty may have the right to adjudicate any dispute arising under it. However, the decision was dependant on the specific wording of the warranty in question and the timing of when the warranty was delivered, and so it may have limited application in practice.
Rachel Chaplin Professional Support Lawyer, London T: +44 (0)20 7876 4235 E: rachel.chaplin@clydeco.com
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