Collateral warranties allow parties that are not part of the original agreement to have a contractual relationship to the party providing a service under the original agreement.
There are several legal factors to consider when looking at collateral warranties in construction contracts. Our highly skilled and friendly team can advise you regardless of the complexity of the project.
The main points of negotiation when drafting a collateral warranty are:
- Insurance – How long must the insurance policy be maintained and at what level?
- Duration of collateral warranty – A collateral warranty tends to range from six to 12 years. The beneficiary of the warranty will want this to be a longer period while the contractor will want this to be as short as possible.
- Step-in rights – This allows the beneficiary to step into the employer’s shoes if needed.
- Assignability – This is of particular importance to a contractor and sets out the number of times that a collateral warranty can be assigned to a third party.
- Any lender requirements
It is highly advised to seek independent legal advice whether you are a contractor or an employer before entering into a collateral warranty. Our highly experienced and cost-effective team can advise you to ensure that your best interests are reflected and that possible risks are minimised.
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