Why they exist
Only the parties to a contract can usually sue on it. A funder, purchaser or tenant who suffers loss from defective work generally has no contract with the contractor or designers. A collateral warranty creates that direct link: the contractor or consultant promises the beneficiary that it has performed, and will perform, its building contract or appointment.
Typical terms
- A warranty of performance, usually limited to the same obligations and liability as the main contract.
- Step-in rights for funders, letting them take over the contract if the employer defaults.
- Professional indemnity insurance requirements for designers.
- Limits on assignment, a liability cap and a “no greater liability” clause.
An alternative is to grant third party rights under the Contracts (Rights of Third Parties) Act 1999, often through a schedule in JCT contracts. Read about other key contract terms.
Can you adjudicate under a warranty?
In Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP [2024] UKSC 23, the Supreme Court held that a collateral warranty is a “construction contract” under the Construction Act only where the contractor undertakes obligations to the beneficiary to carry out construction operations that are separate and distinct from its obligations under the building contract. A warranty that merely promises the beneficiary that the building contract has been or will be performed is not one, so there’s no statutory right to adjudicate. The court expected most collateral warranties to fall outside the Act. Beneficiaries who want adjudication should include an express adjudication clause.
General information, not legal advice. What applies to you depends on your contract, the facts and where the work is, and the law changes. Check the sources below and take advice from a qualified professional before acting on anything that matters.
Last updated: 1 October 2026
