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A Collateral Warranty is a contract under which a consultant, such as a surveyor or architect, warrants to a third party (e.g. a finance provider, landlord or purchaser) that it has complied with its professional appointment or duties under a building contract. It is not a defects liability warranty or guarantee on the project in question.
This type of warranty is most beneficial to the developer who requires bank funding for the project. Nowadays banks are reluctant to lend against speculative projects without the protection of a collateral warranty.
The appointment of a consultant or the award of a building contract will be between two parties i.e. the client/developer and the consultant. Often a third party (the bank) will need the benefit provided via the signed Terms of Business and/or agreement with the client even though it is not a party to such agreement.
A collateral warranty does this and will contain statements to the effect that the consultant or contractor:
The collateral warranty may also provide the third party with a contractual right of redress enabling it to sue for losses which would not otherwise be recoverable.
A Collateral Warranty is NOT transferable in the way that a Professional Consultant Certificate (PCC) is, therefore we always back up the collateral warranty with the ‘PCC’ for each property within the project. This type of structural assurance is totally transferable to the future purchasers of the dwelling and without it the property is not valid security for a loan or mortgage.
Established 1989. Each member of our accredited CML team are members of one of the organisations listed below: