Last edited 02 Dec 2014

Architect's Collateral Warranties

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Contents

[edit] The obligation to provide collateral warranties

There is no legal duty on anyone to agree the terms of or to enter into a collateral warranty in favour of a third party. If collateral warranties are required, the employer is well advised to ensure that there is a binding obligation imposed by the terms of the consultancy agreement with the architect to grant collateral warranties.

The client may want collateral warranties in favour of:

  • Funders.
  • Future purchasers.
  • Tenants.
  • Freeholders, borough councils or other third parties who may suffer a loss if the project is negligently designed or constructed.

But architects should not accept open-ended provisions which raise the prospect of their being required to enter into collateral warranties with, say, 60 tenants.

[edit] Enforceability of obligation

Will courts order the architect to enter into the collateral warranty, or will they suggest that damages for breach of the contractual obligation undertaken by the architect is adequate remedy for the client?

The latter is most widely held, and for this reason, powers of attorney are frequently inserted into tailor-made consultancy agreements in addition to the basic obligation to provide the collateral warranty, which authorises the client to execute the collateral warranty on behalf of the architect if the architect in breach of contract, fails to execute it himself.

[edit] The terms of collateral warranties: CoWa/P&T (purchaser and tenant) [which edition?]

Clause 1: The Warranty

Clause 1(a): The Exclusion of Economic and Consequential Loss

‘The firm shall be liable for the reasonable costs of repair, renewal and/or reinstatement of any part or parts of the development to the extent that:

  • The purchaser/tenant incurs such costs and/or
  • The purchaser/tenant is, or becomes liable either directly or by way of financial contribution for such cost.

The firm shall not be liable for other losses incurred by the purchaser/tenant

  • If this limitation on the basic warranty did not appear, then the architect would be liable to the purchaser/tenant for the damages for breach of contract assessed in accordance with the normal rules.
  • According to the BPF, for clients who wish to extend the consultant’s responsibility to cover economic and consequential loss and can persuade the consultants to provide adequate insurance cover should delete the last sentence and replace it with: ‘The firm shall in addition be liable for other losses incurred by the purchaser/tenant provided that such additional liability to the firm shall not exceed £x in respect of each breach of the firm’s warranty

Clause 1(b):’The Contribution Clause

Clause 1(c): ‘Defences of Liability

Clause 1(d): ‘Independent Enquiry’

Clause 5: ‘Copyright

  • Obliges the architect to give the purchaser/tenant a wide-ranging licence to copy and use the documents for any purpose related to the premises.
  • The licence extends to the copying and use of documents for an extension, but not a right to reproduce the design for an extension.

Clause 6: ‘Professional Indemnity Insurance

  1. The obligation is too uncertain to be enforceable since it is qualified with the proviso: ‘provided always that such insurance is available at commercially reasonable rates’, and
  2. There is no effective sanction for a breach by the architect of their obligation to maintain PII
  • Most PII policies contain a specific endorsement about collateral warranties stipulating the number which may be given and the terms which are insured.

Clause 7: ‘Assignment

  • Blanks are included so that the agreement can prohibit assignment altogether or the number of assignments can be restricted.
  • Two or three assignments are usually permitted.
  • An assignment does not create new rights.
  • It extinguishes the assignor’s rights and, from the date of assignment and gives the assignee the rights which the assignor would otherwise have had.
  • It does not mean that the limitation period starts again.

Clause 9: ‘Limitation’

[edit] CoWa/F (funder) [which edition?]

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