Collateral warranties

As the provision of collateral warranties is an essential feature of most commercial developments, it is no surprise that the principal contract will contain provisions obligating the contractor, consultant, etc. to provide collateral warranties. Such contracts will also usually contain provisions that pass to the contractor or consultant the responsibility of obtaining warranties from its subcontractors and subconsultants. The relevant provisions will state that collateral warranties must be provided within a certain period of time (often within 14 days).

In more extreme cases, the withholding of money or the certificate of practical completion may be used as an added commercial incentive to ensure that the contractor or consultant provides the required warranties.

Such is the perceived importance of collateral warranties that the courts are willing to intervene to ensure their provision where this has been agreed under the building contract. In White Property v Birse Construction [1999] EGCS 147, the court declared that warranties that had been promised under the building contract must be provided or procured as and when requested, as had been contractually agreed, and that there could be no refusal to provide or procure the warranties. In addition the court was even prepared to assess whether the claimant had sustained any loss as a result of the defendant's refusal to provide the warranties.

Forms of collateral warranties

There are industry standard forms of collateral warranty. For example, RICS, RIBA and ACE produce forms to be used by their members. JCT provide forms for use by contractors and subcontractors. Where these standard forms are used, they are often further amended to ensure, for instance, that the beneficiary's right to pursue the warrantor is not fettered by clauses restricting or limiting the warrantor's liability.

Most commercial developers will insist upon using their own, funder-approved, bespoke forms of collateral warranty.