Collateral warranty clause: a UK sample and who gets one

Sample clause

Written for warranty given by Penarth Quay Architects, a fictional design practice, to the purchaser and the first tenant of a new office building in Cardiff.

Warranty. (a) The Architect warrants to the Beneficiary that it has exercised, and will continue to exercise, the reasonable skill, care and diligence to be expected of a properly qualified architect in performing the Appointment. (b) The Architect's liability under this Deed is no greater than it would have been had the Beneficiary been a party to the Appointment, and the Architect may rely on any defence it has under the Appointment. (c) The Architect's liability for any loss is limited to the proportion of that loss which it would be just and equitable for the Architect to pay, assuming the other consultants and the contractor had given equivalent warranties and paid their share. (d) The Architect's total liability under this Deed is limited to £2 million. (e) The Beneficiary may assign this Deed twice without consent, and no action may be brought more than 12 years after practical completion.

Sample wording, not legal advice.

Variants

What to negotiate

• Net contribution

  A net contribution clause limits the warrantor to its fair share of a loss, as though everyone else responsible had paid theirs. Without it, joint liability could leave one warrantor paying the whole loss and chasing others. Beneficiaries resist it, but it is standard in consultant warranties.

• Caps and assignment

  Warrantors cap total liability, often at a figure linked to their professional indemnity insurance, and limit how many times the warranty can be assigned. Beneficiaries want enough assignments to cover future buyers and funders. Two assignments without consent, as in the sample, is a common compromise.

• Adjudication

  Whether a party can adjudicate a dispute under a collateral warranty depends on whether the warranty is a construction contract under section 104 of the Housing Grants, Construction and Regeneration Act 1996. In Abbey Healthcare v Simply Construct in 2024 the Supreme Court held that a warranty is generally not a construction contract unless it contains an undertaking to carry out construction operations, so statutory adjudication is usually unavailable.

The risk of leaving it out

Without collateral warranties, a purchaser or tenant who finds a defect in a new building usually has no contract with the contractor or designer, and claims in negligence for pure economic loss generally fail. A funder without a warranty cannot step in to keep a project going if the developer fails. That is why development agreements and leases often require them.

Who gets a warranty and what each gets

Funder: a warranty of skill and care plus step in rights to take over the contract or appointment if the borrower defaults. Purchaser: a warranty of skill and care and against deleterious materials, assignable to later buyers. Tenant: a warranty limited to repair costs, because the tenant's exposure is under its repairing covenant. Each usually includes net contribution, a cap and a limitation period of 12 years from practical completion when signed as a deed.

Warranties and third party rights

The Contracts (Rights of Third Parties) Act 1999 lets a contract give enforceable rights to a person who is not a party, and many building contracts and appointments now grant third party rights schedules instead of separate warranty deeds. Third party rights do the same job with less paperwork, though funders often still prefer deeds. Either way, the same terms on caps, net contribution and assignment matter. Law checked on 21 October 2026. This page explains how the law works and is not legal advice.

Adjudication after the 2024 decision

Before 2024 the Court of Appeal had treated some collateral warranties as construction contracts, allowing quick statutory adjudication. The Supreme Court's 2024 decision in Abbey Healthcare v Simply Construct reversed that approach for typical warranties, which promise that work under another contract has been or will be done, rather than undertaking construction operations themselves. Beneficiaries who want adjudication must now agree it expressly in the warranty.

Where the clause sits in a generated document

Subcontracts, consultant appointments and service agreements in UK construction often require the subcontractor or consultant to give warranties in an agreed form. When asking the AI document generator for one, name the beneficiary type, the standard of care, net contribution, the cap, the assignment limit, any step in rights and whether adjudication is agreed.

Documents that carry this clause

Subcontractor agreement template that flows the head contract downA subcontract exists to pass the head contract's obligations down one level and move the money back up on time. This one names the scope by drawing, sets the progress claim dates against the security of payment rules, holds retention and states the insurances, so the trade knows exactly when it is paid and for what.Service agreement template with scope, service levels and an exitA service agreement template has to say what is supplied, how well, for what fee, who is liable for what, and how either side gets out. This one is filled in for Beacon Systems supporting Harlow Freight's IT for an initial 24 months from 1 October 2026 at $8,400 a month plus GST, with 40 hours included and $220 an hour beyond them. Twelve numbered clauses cover the services, a four level severity table, client duties, fees with a CPI adjustment, confidentiality, privacy, IP, a liability cap, termination and a three step dispute ladder under Victorian law.

Questions people ask