Collateral warranties for building design and construction - Revision history

Designing Buildings at 06:49, 26 August 2026

2026-08-26T06:49:01Z

← Older revision		Revision as of 06:49, 26 August 2026
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−	[[File:Contract-~~ga27c0c345_1280.jpg\|link=File:Contract-ga27c0c345_1280~~.jpg]]	+	[[File:Contract-ga27c0c345 1280.jpg]]

	= What is a collateral warranty? =		= What is a collateral warranty? =
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	There are a number of standard forms of collateral warranty (such as Joint Contracts Tribunal (JCT) collateral warranties), however there can be some dispute about their specific terms, with clients often claiming that industry standard warranties favour contractors and designers. There can also be difficulties with onerous terms that designers or contractors are unable to agree to as their insurers will not provide cover. As a consequence many collateral warranties are bespoke.		There are a number of standard forms of collateral warranty (such as Joint Contracts Tribunal (JCT) collateral warranties), however there can be some dispute about their specific terms, with clients often claiming that industry standard warranties favour contractors and designers. There can also be difficulties with onerous terms that designers or contractors are unable to agree to as their insurers will not provide cover. As a consequence many collateral warranties are bespoke.

−	Collateral warranties may include 'step-in' rights allowing the beneficiary to step-into the role of the client. This can be important, for example to banks providing funding for a project, enabling them to ensure that the project is completed if the client becomes insolvent.	+	Collateral warranties may include 'step-in' rights allowing the beneficiary to step into the role of the client. This can be important, for example to banks providing funding for a project, enabling them to ensure that the project is completed if the client becomes insolvent.

	There may also be a contractual requirement for parties to obtain further warranties, for example there may be an obligation for the main contractor to obtain parallel collateral warranties from sub-contractors.		There may also be a contractual requirement for parties to obtain further warranties, for example there may be an obligation for the main contractor to obtain parallel collateral warranties from sub-contractors.
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	== Parkwood Leisure Limited v Laing ==		== Parkwood Leisure Limited v Laing ==

−	In the case of Parkwood Leisure Limited v Laing ~~O’Rourke~~ Wales and West Limited in 2013, the judge found that ~~Parkwood’s~~ collateral warranty qualified as a 'construction contract' as the definitions were widely construed and so The Housing Grants, Construction and Regeneration Act applied to it as it covers all contracts related to the carrying out of construction operations.	+	In the case of Parkwood Leisure Limited v Laing O'Rourke Wales and West Limited in 2013, the judge found that Parkwood's collateral warranty qualified as a 'construction contract' as the definitions were widely construed and so The Housing Grants, Construction and Regeneration Act applied to it as it covers all contracts related to the carrying out of construction operations.

−	The Housing Grants, Construction and Regeneration Act 1996 (HGRA - also known as the Construction Act) is intended to ensure that payments are made promptly throughout the supply chain and that disputes are resolved swiftly. The Act applies to all contracts for 'construction operations' (including consultants' appointments). If construction contracts fail to comply with the ~~act~~, then the Scheme for Construction Contracts applies.	+	The Housing Grants, Construction and Regeneration Act 1996 (HGRA - also known as the Construction Act) is intended to ensure that payments are made promptly throughout the supply chain and that disputes are resolved swiftly. The Act applies to all contracts for 'construction operations' (including consultants' appointments). If construction contracts fail to comply with the Act, then the Scheme for Construction Contracts applies.

−	For more information see: Housing Grants, Construction and Regeneration Act	+	For more information see: Housing Grants, Construction and Regeneration Act.

−	~~The court’s~~ decision was an unexpected one for practitioners who assumed the Act did not apply to warranties.	+	At the time, the court's decision was an unexpected one for practitioners who assumed the Act did not apply to warranties.

	For more information see: Parkwood Leisure Limited v Laing.		For more information see: Parkwood Leisure Limited v Laing.

−	Collateral warranties will now be subject to greater scrutiny in the light of this case, with resistance from contractors and consultants to grant warranties and a desire to restrict the number and scope of warranties. That inevitably means further complications for the negotiation and drafting of warranties resulting in protracted and costly negotiations.	+	== Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2024] UKSC 23 ==

−	The ~~upshot of this could now see~~ the ~~rise~~ of ~~third party rights as circumventing~~ the ~~issues surrounding~~ collateral ~~warranties~~.	+	The approach taken in Parkwood was substantially revisited by the Supreme Court in Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2024] UKSC 23, decided in July 2024. Overturning the Court of Appeal's 2022 decision in the same case, the Supreme Court held that the collateral warranty in question was not a 'construction contract' for the purposes of the Housing Grants, Construction and Regeneration Act 1996, and so the beneficiary had no automatic right to statutory adjudication under it.

−	~~For more information see: Rights~~ of ~~third parties~~.	+	Lord Hamblen, giving the leading judgment, held that a collateral warranty will only be a construction contract if it imposes obligations that are separate and distinct from those already owed under the underlying building contract. A warranty that simply repeats, or 'derivatively' promises, performance of obligations the contractor or consultant already owes to the employer - even where it is expressed in terms of continuing or future performance - will not usually qualify. On this basis, the Supreme Court indicated that most collateral warranties will not be construction contracts.

−	~~See also: Difference between~~ collateral ~~warranties~~ and ~~third party rights~~.	+	The decision means that parties can no longer assume that a collateral warranty carries the statutory right to adjudicate disputes quickly and relatively cheaply. Anyone drafting, negotiating or relying on a collateral warranty should therefore consider including express adjudication or other alternative dispute resolution provisions within the warranty itself, rather than assuming the protections of the Construction Act will apply by default.

	== Other cases ==		== Other cases ==

−	Other examples of ~~case~~ related to collateral warranties include:	+	Other examples of cases related to collateral warranties include:

−	* [[D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others\|D&F Estates Limited and Others v Church Commissioners for England and others]].	+	* [https://www.designingbuildings.co.uk/wiki/D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others D&F Estates Limited and Others v Church Commissioners for England and others].
	* Murphy v Brentwood District Council.		* Murphy v Brentwood District Council.
−	* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]	+	* [https://www.designingbuildings.co.uk/wiki/Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013].
−	* In 2024, the Supreme Court found that collateral warranties do not constitute construction contracts, overturning the 2022 ruling of the Appeal Court in the case of Abbey Healthcare v Simply Construction.	+

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =

−	* Agency.
	* Appointing consultants.		* Appointing consultants.
−	* Collateral.
−	* Consultant switch.
	* Construction contract.		* Construction contract.
−	* [[D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others\|D&F Estates Limited and Others v Church Commissioners for England and others]].	+	* [https://www.designingbuildings.co.uk/wiki/D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others D&F Estates Limited and Others v Church Commissioners for England and others].
	* Defects.		* Defects.
	* Definition of collateral warranty.		* Definition of collateral warranty.
	* Design liability.		* Design liability.
	* Difference between collateral warranties and third party rights.		* Difference between collateral warranties and third party rights.
−	* Guarantees.
	* Housing Grants, Construction and Regeneration Act.		* Housing Grants, Construction and Regeneration Act.
	* Murphy v Brentwood District Council.		* Murphy v Brentwood District Council.
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	* Practical considerations of collateral warranties.		* Practical considerations of collateral warranties.
	* Scheme for Construction Contracts.		* Scheme for Construction Contracts.
−	* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]	+	* [https://www.designingbuildings.co.uk/wiki/Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013].
	* Step-in rights.		* Step-in rights.
	* Sub contractors.		* Sub contractors.

Designing Buildings at 05:54, 16 July 2024

2024-07-16T05:54:28Z

← Older revision		Revision as of 05:54, 16 July 2024
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	* Murphy v Brentwood District Council.		* Murphy v Brentwood District Council.
	* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]		* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]
		+	* In 2024, the Supreme Court found that collateral warranties do not constitute construction contracts, overturning the 2022 ruling of the Appeal Court in the case of Abbey Healthcare v Simply Construction.

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =

Designing Buildings at 09:21, 1 November 2022

2022-11-01T09:21:28Z

← Older revision		Revision as of 09:21, 1 November 2022
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	The court’s decision was an unexpected one for practitioners who assumed the Act did not apply to warranties.		The court’s decision was an unexpected one for practitioners who assumed the Act did not apply to warranties.
		+
		+	For more information see: Parkwood Leisure Limited v Laing.

	Collateral warranties will now be subject to greater scrutiny in the light of this case, with resistance from contractors and consultants to grant warranties and a desire to restrict the number and scope of warranties. That inevitably means further complications for the negotiation and drafting of warranties resulting in protracted and costly negotiations.		Collateral warranties will now be subject to greater scrutiny in the light of this case, with resistance from contractors and consultants to grant warranties and a desire to restrict the number and scope of warranties. That inevitably means further complications for the negotiation and drafting of warranties resulting in protracted and costly negotiations.
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	See also: Difference between collateral warranties and third party rights.		See also: Difference between collateral warranties and third party rights.
		+
		+	== Other cases ==
		+
		+	Other examples of case related to collateral warranties include:
		+
		+	* [[D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others\|D&F Estates Limited and Others v Church Commissioners for England and others]].
		+	* Murphy v Brentwood District Council.
		+	* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =

Designing Buildings at 09:18, 1 November 2022

2022-11-01T09:18:31Z

← Older revision		Revision as of 09:18, 1 November 2022
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−	[[File:Contract-~~ga27c0c345 1280~~.jpg]]	+	[[File:Contract-ga27c0c345_1280.jpg\|link=File:Contract-ga27c0c345_1280.jpg]]

	= What is a collateral warranty? =		= What is a collateral warranty? =

−	Collateral warranties are agreements ~~which~~ are associated with another 'primary' contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.	+	Collateral warranties are agreements that are associated with another 'primary' contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.
		+
		+	For a detailed legal definition of collateral warranties, see: Definition of collateral warranty.
		+
		+	= Why are collateral warranties needed? =

	They came into being as a result of the courts deciding that defects in buildings were not recoverable in tort, as they were an economic loss which was only recoverable through a contractual relationship. Collateral warranties therefore create direct contractual relationships between parties that would not otherwise exist.		They came into being as a result of the courts deciding that defects in buildings were not recoverable in tort, as they were an economic loss which was only recoverable through a contractual relationship. Collateral warranties therefore create direct contractual relationships between parties that would not otherwise exist.
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	A typical example would be where an architect of a new office development owes a duty of care to an occupier of the development in so far as any subsequent defects which may arise are concerned. Privity of contract rules would prevent any liability arising between the architect and occupier without the existence of a collateral warranty.		A typical example would be where an architect of a new office development owes a duty of care to an occupier of the development in so far as any subsequent defects which may arise are concerned. Privity of contract rules would prevent any liability arising between the architect and occupier without the existence of a collateral warranty.

−	There ~~may also be~~ a ~~contractual requirement for parties to obtain further~~ warranties, ~~for example~~ there ~~may~~ be ~~an obligation for the main contractor~~ to ~~obtain~~ collateral warranties ~~from sub-contractors~~.	+	= What terms might a collateral warranty include? =
		+
		+	There are a number of standard forms of collateral warranty (such as Joint Contracts Tribunal (JCT) collateral warranties), however there can be some dispute about their specific terms, with clients often claiming that industry standard warranties favour contractors and designers. There can also be difficulties with onerous terms that designers or contractors are unable to agree to as their insurers will not provide cover. As a consequence many collateral warranties are bespoke.

	Collateral warranties may include 'step-in' rights allowing the beneficiary to step-into the role of the client. This can be important, for example to banks providing funding for a project, enabling them to ensure that the project is completed if the client becomes insolvent.		Collateral warranties may include 'step-in' rights allowing the beneficiary to step-into the role of the client. This can be important, for example to banks providing funding for a project, enabling them to ensure that the project is completed if the client becomes insolvent.

−	There ~~are~~ a ~~number of standard forms of collateral warranty (such as Joint Contracts Tribunal (JCT) collateral~~ warranties), ~~however~~ there ~~can~~ be some dispute about their specific terms, with clients often claiming that industry standard warranties favour contractors and designers. There can also be difficulties with onerous terms that designers or contractors are unable to ~~agree to as their insurers will not provide cover. As a consequence many~~ collateral warranties ~~are bespoke~~.	+	There may also be a contractual requirement for parties to obtain further warranties, for example there may be an obligation for the main contractor to obtain parallel collateral warranties from sub-contractors.

	One of the disadvantages of collateral warranties is the difficulty in actually completing them. On large projects with many consultants and sub-contractors and multiple occupants, there can be a great number of warranties. The Contracts (Rights of Third Parties) Act can offer a way around this difficulty by allowing the primary contracts to confer benefits upon third parties even though they are not a party to that contract.		One of the disadvantages of collateral warranties is the difficulty in actually completing them. On large projects with many consultants and sub-contractors and multiple occupants, there can be a great number of warranties. The Contracts (Rights of Third Parties) Act can offer a way around this difficulty by allowing the primary contracts to confer benefits upon third parties even though they are not a party to that contract.

−	See also Practical considerations of collateral warranties.	+	See also: Practical considerations of collateral warranties.
		+
		+	= Case law relating to collateral warranties =
		+
		+	== Parkwood Leisure Limited v Laing ==
		+
		+	In the case of Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited in 2013, the judge found that Parkwood’s collateral warranty qualified as a 'construction contract' as the definitions were widely construed and so The Housing Grants, Construction and Regeneration Act applied to it as it covers all contracts related to the carrying out of construction operations.

−	~~For a detailed legal definition of collateral warranties~~, ~~see Definition of collateral warranty~~.	+	The Housing Grants, Construction and Regeneration Act 1996 (HGRA - also known as the Construction Act) is intended to ensure that payments are made promptly throughout the supply chain and that disputes are resolved swiftly. The Act applies to all contracts for 'construction operations' (including consultants' appointments). If construction contracts fail to comply with the act, then the Scheme for Construction Contracts applies.

−	~~= Parkwood Leisure Limited v Laing =~~	+	For more information see: Housing Grants, Construction and Regeneration Act

−	~~In the case of Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited in 2013, the judge found that Parkwood’s collateral warranty~~ was ~~a construction contract as~~ the ~~definitions were widely construed and The Housing Grants, Construction and Regeneration~~ Act ~~applies~~ to ~~all contracts related to the carrying out of construction operations~~.	+	The court’s decision was an unexpected one for practitioners who assumed the Act did not apply to warranties.

−	~~The court’s decision is an unexpected one for practitioners who assumed~~ the ~~Act did not apply~~ to warranties.	+	Collateral warranties will now be subject to greater scrutiny in the light of this case, with resistance from contractors and consultants to grant warranties and a desire to restrict the number and scope of warranties. That inevitably means further complications for the negotiation and drafting of warranties resulting in protracted and costly negotiations.

−	~~Collateral warranties will now be subject to greater scrutiny in the light~~ of this ~~case. We may~~ now see ~~a resistance among contractors and consultants to grant warranties and a desire to perhaps restrict~~ the ~~number and scope~~ of ~~warranties so that their application is limited to be retrospective only. That inevitably means further complications for~~ the ~~negotiation and drafting of~~ warranties ~~resulting in protracted and costly negotiations~~.	+	The upshot of this could now see the rise of third party rights as circumventing the issues surrounding collateral warranties.

−	~~The decision also raises speculation as to the application~~ of ~~the Act’s Scheme for Construction Contracts and payment provisions to warranties considered to be construction contracts~~.	+	For more information see: Rights of third parties.

−	~~The upshot of this could now see the rise of~~ third party rights ~~as circumventing the issues arising from this case~~. ~~Could this spell the end of the widespread use of warranties which may finally be falling out of favour?~~	+	See also: Difference between collateral warranties and third party rights.

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =
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	* Agency.		* Agency.
	* Appointing consultants.		* Appointing consultants.
−	* Caveat emptor.
−	* Clause.
	* Collateral.		* Collateral.
−	* Concession Contracts Regulations.
−	* Consideration.
	* Consultant switch.		* Consultant switch.
	* Construction contract.		* Construction contract.
−	* Contractual obligation.
	* [[D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others\|D&F Estates Limited and Others v Church Commissioners for England and others]].		* [[D%26F_Estates_Limited_and_Others_v_Church_Commissioners_for_England_and_others\|D&F Estates Limited and Others v Church Commissioners for England and others]].
	* Defects.		* Defects.
	* Definition of collateral warranty.		* Definition of collateral warranty.
−	* Delay analysis.
−	* Design and build.
	* Design liability.		* Design liability.
−	* Designers.
	* Difference between collateral warranties and third party rights.		* Difference between collateral warranties and third party rights.
	* Guarantees.		* Guarantees.
	* Housing Grants, Construction and Regeneration Act.		* Housing Grants, Construction and Regeneration Act.
−	* Insurance.
	* Murphy v Brentwood District Council.		* Murphy v Brentwood District Council.
	* Novation.		* Novation.
−	* Onerous contract.
	* Parkwood Leisure Limited v Laing.		* Parkwood Leisure Limited v Laing.
	* Parent company guarantee.		* Parent company guarantee.
	* Performance bond.		* Performance bond.
−	* Post-completion insurance.
	* Practical considerations of collateral warranties.		* Practical considerations of collateral warranties.
−	* Professional appointments.
−	* Professional consultant's certificate.
−	* Professional indemnity insurance.
−	* Reliance letter.
	* Scheme for Construction Contracts.		* Scheme for Construction Contracts.
	* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]		* [[Squibb_Group_Ltd_v_London_Pleasure_Gardens_Ltd_%26_Anor\|Squibb Group Ltd v London Pleasure Gardens Ltd & Anor 2013.]]
	* Step-in rights.		* Step-in rights.
	* Sub contractors.		* Sub contractors.
−	* Surety.
	* The Contracts (Rights of Third Parties) Act.		* The Contracts (Rights of Third Parties) Act.
	* Warranty.		* Warranty.

Designing Buildings at 09:02, 1 November 2022

2022-11-01T09:02:59Z

← Older revision		Revision as of 09:02, 1 November 2022
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−	= ~~Introduction~~ =	+	[[File:Contract-ga27c0c345 1280.jpg]]
		+
		+	= What is a collateral warranty? =

	Collateral warranties are agreements which are associated with another 'primary' contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.		Collateral warranties are agreements which are associated with another 'primary' contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.

Designing Buildings at 08:26, 4 August 2022

2022-08-04T08:26:47Z

← Older revision		Revision as of 08:26, 4 August 2022
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	The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?		The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?

−	~~[[File:DBWCTA_c_link_collateral_warranties_ebook.png\|link=https://hubs.la/H0NmtPR0]]~~	+	= Related articles on Designing Buildings =
−		+
−	= Related articles on Designing Buildings ~~Wiki~~ =	+

	* Agency.		* Agency.

Editor at 16:49, 18 August 2021

2021-08-18T16:49:49Z

← Older revision		Revision as of 16:49, 18 August 2021
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	The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?		The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?

−	[[File:~~DBWCTA c link collateral warranties ebook~~.png\|link=https://hubs.la/H0NmtPR0]]	+	[[File:DBWCTA_c_link_collateral_warranties_ebook.png\|link=https://hubs.la/H0NmtPR0]]

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =
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	* Murphy v Brentwood District Council.		* Murphy v Brentwood District Council.
	* Novation.		* Novation.
		+	* Onerous contract.
	* Parkwood Leisure Limited v Laing.		* Parkwood Leisure Limited v Laing.
	* Parent company guarantee.		* Parent company guarantee.

Designing Buildings at 10:30, 21 May 2021

2021-05-21T10:30:40Z

← Older revision		Revision as of 10:30, 21 May 2021
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	The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?		The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?
		+
		+	[[File:DBWCTA c link collateral warranties ebook.png\|link=https://hubs.la/H0NmtPR0]]

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =

Designing Buildings at 08:01, 1 October 2020

2020-10-01T08:01:40Z

← Older revision		Revision as of 08:01, 1 October 2020
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	The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?		The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?
−
−	~~[[File:C_link_collateral_warranties.png\|link=http://zpr.io/gr8Tm]]~~

	= Related articles on Designing Buildings Wiki =		= Related articles on Designing Buildings Wiki =

Designing Buildings at 07:30, 28 August 2020

2020-08-28T07:30:39Z

← Older revision		Revision as of 07:30, 28 August 2020
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	* [http://www.legislation.gov.uk/ukpga/1999/31/contents The Contracts (Rights of Third Parties) Act].		* [http://www.legislation.gov.uk/ukpga/1999/31/contents The Contracts (Rights of Third Parties) Act].

−	[[Category:~~Articles_needing_more_work~~]] [[Category:Appointments]] [[Category:Contracts_/_payment]] [[Category:Procurement]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Appointments]] [[Category:Contracts_/_payment]] [[Category:Procurement]]