How I ditched my warranty habit and learned to love Third Party Rights

You probably know all about collateral warranties? Those arcane little bits of
paper which developers, contractors and consultants are sent endlessly running off to get for mysterious reasons, rather like quartermaster’s chits. One contractor, 5 consultants, 4 subcontractors. One bank. 4 tenants. One future disposal. That’s 60 of the wretched things for starters. What are they for exactly? Well I won’t go into huge details in this blog. Suffice it to say that it gives others, such as your bank, rights to sue under your contracts, and these days, with plenty of property to choose from, if you don’t give them to your bank and tenants you probably won’t be getting any money or lettings. Oh, and we construction lawyers LOVE them, right?

WRONG! I personally loathe and detest them if after the end of a job, and for a new letting or purchaser or funder, it means asking the unwilling, the suspicious, the procrastinators, the ‘not so good at the paperwork side’, the ‘I dealt with this 3 years ago, didn’t Is’. You really can’t blame them. Architects are there to design and contractors to build, not shuffle my paperwork for me. Plus if there’s already a known problem with a building, warrantors are understandably nervous about adding to the people who can give them grief about it, even if, 3 years ago, before you paid all their invoices, they said they would. Injunction proceedings anyone?

But, Ladies and Gentlemen, There is Another Way…… Actually it’s been
around since the Contracts (Rights of Third Parties) Act 1999 came into force, but the industry can be a little conservative so this method has only been considered ‘normal’ for the last couple of years (thanks to some pioneering occupiers, such as Travelodge, so hats off to them). Under the Act you can ask your project team to sign up to the equivalent of collateral warranties in advance in favour of A bank, A tenant, A purchaser. Then when the time comes, you just write to your team and tell them who these people actually are to whom they owe their contractual obligations. Sorted. No fuss, no hassle, no having to go back to their insurers or dust off their archived files checking what they promised to do. No holding to ransom.

If you want to find out more about how Third Party Rights can help you, contact me by emailing karen.kirkham@edwincoe.com

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