Collateral Warranties ' Why?

• Published date: 20 July 2023
• Law Firm: Blaser Mills
• Author: Lewis Cohen

When it comes to construction contracts, there are often multiple parties involved, each with their own interests and concerns. An important aspect of these contracts is third party rights, which allow individuals or organisations who are not directly involved in the agreement to enforce certain terms or protections.

In this article we look into third party rights in construction contracts, examining the legislation that governs them, the benefits they offer, and the importance of collateral warranties in ensuring their effectiveness.

Whether you are a contractor, subcontractor, or other party involved in the construction process, understanding third party rights is essential for protecting your interests and ensuring a successful project outcome.

What are third party rights?

Third party rights exist to enable a third party who is not a party to a contract to enforce the terms of the contract.

In construction documents, third party rights are often a set of rights expressly enforceable by a third party and set out in a schedule to a professional appointment or building contract.

Third parties who often acquire third party rights are as follows:

• Funders;
• Purchasers; and
• Tenants who occupy the premises after completion.

Which piece of legislation regulates third party rights?

The Contracts (Rights of Third Parties) Act 1999 ("the Act") regulates third party rights in a construction context.

The introductory text to the Act confirms that this is an act to make provision for the enforcement of contractual terms by third parties.

Section 1(1) of the Act...