At DTM Legal, we support developers, contractors, subcontractors and consultants across the full lifecycle of construction and engineering projects. We advise on and prepare collateral warranties to help protect the interests of funders, purchasers, tenants and other third parties, ensuring the obligations, rights and risk profile are clearly documented from the outset.
Collateral warranties are a common requirement on construction and development projects. When properly drafted, they can give key stakeholders the protection and reassurance they need without creating unnecessary ambiguity or disproportionate risk. If they are left unclear, issued too late, or not aligned with the wider contract suite, they can delay transactions, complicate funding requirements and increase the risk of disputes.
Types of Collateral Warranties We Can Assist With
We advise on a wide range of collateral warranties and related third-party protection documents, including:
- Consultant collateral warranties, including architects, engineers, project managers, quantity surveyors and other members of the professional team
- Contractor collateral warranties in favour of employers, funders, purchasers, tenants and other stakeholders
- Sub-contractor collateral warranties where third-party protection is required further down the supply chain
- Bespoke collateral warranties tailored to specific project risks, procurement routes and stakeholder requirements
- Related third-party rights provisions where a contract-based alternative to a collateral warranty may be more appropriate
We can support both warranties based on standard market wording and bespoke documents, ensuring they are consistent with the underlying contract, appointment or wider project documentation.
Key Considerations When Putting Collateral Warranties in Place
We help ensure collateral warranties reflect the commercial position and work effectively in practice, including:
- Consistency with the underlying contract: making sure the collateral warranty aligns with the building contract, appointment or subcontract and does not create conflicting obligations
- Scope of obligations: ensuring the beneficiary receives the protection it expects without inadvertently expanding the warrantor’s responsibilities
- Standard of care: checking that professional obligations are clearly expressed and appropriate for the role being performed
- Assignment rights: agreeing whether the benefit of the collateral warranty can be assigned and, if so, how many times and on what terms
- Step-in rights: addressing whether funders or other stakeholders should have the right to step into the employer’s position in certain circumstances
- Insurance obligations: confirming the level, duration and evidence requirements for professional indemnity or other relevant insurance
- Liability and caps: ensuring any limitations of liability, net contribution clauses and exclusions are properly drafted and commercially appropriate
- Execution formalities: preparing the document correctly, including whether it needs to be executed as a deed
- Timing: avoiding delays by ensuring collateral warranties are agreed and signed at the right stage of the project or transaction
- Wider stakeholder requirements: taking account of funder, purchaser, tenant and development agreement requirements so the document is fit for purpose
Warranty Disputes
Disputes can arise where collateral warranties are unclear, incomplete, inconsistent with the underlying contract, or where a party believes the works or services provided have fallen below the required standard. Issues may also arise where collateral warranties have not been provided on time, have not been properly executed, or do not reflect the requirements of funders, purchasers or tenants.
Our team can assist with collateral warranty disputes involving:
- Alleged breaches of the collateral warranty obligations
- Disputes over the standard of work or professional services provided
- Conflicts between the wording of the collateral warranty and the underlying contract or appointment
- Issues concerning assignment, step-in rights or enforceability
- Claims relating to defects, delays or project losses
- Disputes over liability caps, exclusions and insurance obligations
- Failures to provide collateral warranties in accordance with contractual obligations or transaction requirements
Where disputes arise, we work with clients to understand the wider contractual position, assess the strength of the claim or defence, and identify the most effective route to resolution. This may include early negotiation, formal correspondence, mediation, adjudication or litigation, depending on the nature of the issue and the commercial objectives involved.
Benefits of Properly Drafted Collateral Warranties
A well-drafted warranty can deliver important legal and commercial benefits, including:
- Direct protection for funders, purchasers, tenants and other key stakeholders
- Greater confidence for third parties involved in funding, acquiring or occupying the development
- Reduced scope for disputes caused by unclear obligations or inconsistent project documents
- Better alignment between the project documents and stakeholder requirements
- Improved transaction efficiency when warranties are needed for finance, sale or letting purposes
- Stronger legal certainty if defects, delays or performance issues arise later
Costs can vary depending on the number of collateral warranties required, the complexity of the project structure, and the level of negotiation involved with other parties and stakeholders. We offer transparent pricing and can provide a clear estimate once we understand the project, the underlying documents and the relevant timescales.
Speak with a Member of the DTM Legal Team
If you need support preparing, reviewing or negotiating collateral warranties for a construction or engineering project, or require advice in relation to a warranty dispute, our team is here to help. Contact our Construction & Engineering team to discuss your requirements by calling 01244 354800 / 0151 3210000 or emailing construction@dtmlegal.com.
