Collateral Warranties

Collateral Warranties

As a principal funder, collateral warranties are used as a supporting document to a primary contract where an agreement needs to be put in place with a third party outside of the primary contract. Sometimes an architect, contractor, or sub-contractor will need to warrant to a funder that it has fulfilled its duties under a building contract. Collateral warranties create a contractual link where none had previously existed and give these interested third parties a right to bring a contractual claim against the parties that designed or built the project. What does a collateral warranty include? It is important that a collateral warranty is consistent with the underlying contract that it relates to and there are certain clauses that would be expected in any collateral warranty such as: • A covenant that the warrantor has and is continuing to fulfil their obligations under the underlying contract (be that the building contract, appointment, or sub-contract) and will carry out any design with reasonable skill, care & diligence. • The granting of a copyright licence to use/reproduce any designs, drawings, calculations etc produced by the warrantor; and • An obligation to maintain professional indemnity insurance at a certain level for a set number of years following completion of the project. Collateral warranties may also include various caps on liability which seek to limit the warrantor’s liability to the beneficiary of the collateral warranty. Such clauses can include a financial cap on the warrantor’s liability, a net contribution clause but we cannot accept the vast majority of these as each