Warranties/Third Party Rights

Below is an introduction to the topic of warranties/third party rights. You can also search for your specific topic using the Search box at the top of the page or click on any of the following keywords and phrases:Contracts (Rights of Third Parties) Act; insurer; ROTP Act; step in rights.

Third party warranties became popular as a way of ensuring that there was a contractual link between parties that otherwise would have had none: typically between a subcontractor and the employer, funder, purchaser and tenant. This gives the employer, funder etc a direct contractual remedy in the event that there is a defect in the works.

The Contracts (Rights of Third Parties) Act 1999 (the 'ROTP Act') gives third parties certain rights under contracts to which they are not party, so employers, funders etc can now have rights directly under a subcontract. However, the ROTP Act can be excluded from contracts and in construction contracts is so excluded almost as a matter of routine. It is slowly gaining ground now, in particular as it is now used under some JCT contracts. The ROTP Act applies in England, Wales and Northern Ireland only.

If a subcontractor finds that third party rights will be used instead of a warranty, it is vital to ensure that the rights the third party has are clearly laid out in a schedule to the subcontract. As this needs to contain all the things a warranty would have done, from the subcontractor's point of view, there will be little difference between a warranty and a schedule of third party rights. The main contractor may find it more convenient however, with much less paperwork. You will need to be very clear as to who is entitled to third party rights.