What Is a Collateral Warranty? A JCT Contract Guide for UK Construction

Collateral Warranties & Third-Party Rights: What to Check

A collateral warranty or third-party rights schedule under JCT creates direct contractual rights for third-party beneficiaries to pursue your business. These rights depend entirely on bespoke drafting, defined beneficiary classes, and negotiated limitations. They are never automatic or standard.

Check the Limitation Wording (England & Wales)

Under the Limitation Act 1980 in England and Wales, obligations executed under seal as a deed are subject to a 12-year limitation period. This statutory clock runs from the date the cause of action accrues—it does not automatically trigger from Practical Completion or warranty execution without explicit drafting. Limitation rules differ in Scotland and Northern Ireland; verify your governing law before executing terms.

Essential Review Checklist Before Signing

• Enforcement Scope: Identify exactly who qualifies as an enforceable beneficiary and confirm the boundary of warrantied works.
• Net Contribution Clauses: Prevent 100% joint-and-several claims by ensuring you are only liable for your proportionate share of defect damages.
• PI Insurance Covenants: Ensure Professional Indemnity maintenance terms include: “provided cover remains available at commercially reasonable rates”.
• Step-In Payment Conditions: Mandate that funders must discharge all outstanding interim sums before compelling you to perform post-insolvency works.
• Governing Law & Limitation: Strike out ambiguous wording that extends the 12-year statutory limitation baseline under English law.