Defects in the design and construction- tenant’s perspective
Outcomes:
1. Evaluate the acceptability of a prospective tenant’s amendments to the architect’s collateral
warranties.
2. Explain the purpose and content of an agreement for lease
3. Advise a developer as to its rights and obligations under an agreement for lease.
Collateral warranties:
Entered into by someone who is engaged in the construction or design, thereby assuming a
contractual duty of care for the benefit of someone who has an interest in seeing that the building is
free from defects but does not otherwise have a relationship with the warrantor.
• Usually given by consultants, the main contractor and sub-contractors to the freehold buyer of
the development, his lender, the employer’s financiers and possibly the tenant.
• Developer may require one from the sub-contractors with whom he does not have a
contractual relationship with.
• Obligations given in collateral warranties should be no greater than the one in the letter of
appointment- such as the liability period.
Provisions of a collateral warranty:
(a) warrantor owes third party a duty of care
Confirmation that the warrantor (ie building contractor, sub-contractor or consultant) owes to the third party benefiting
from the warranty a duty of care similar to that owed to the person employing him. The warrantor will already owe a
duty of care to the person employing him, normally the developer, by virtue of being appointed under a contract by his
employer to carry out the design or construction work. It will oblige the warrantor to use reasonable skill and care in the
performance of his duties under the contract, and he will be negligent if he fails to do so.
(b) Confirmation that deleterious materials will not be used in the development.
A warranty given by the architect will confirm that such materials will not be specified for use in the development, and a
warranty given by the building contractor will confirm that such materials will not be used in the development. The
materials that are not to be used may be listed in the warranty, cross-referenced to the list appearing in the
appointment, or the warranty may exclude the use of materials that do not comply with British Standards or are known
to be deleterious. Listing deleterious materials in the warranty itself has been largely replaced by a general warranty
not to use deleterious materials. This is because certain materials which appeared on the lists included in warranties
were found not to be deleterious, and producers of such materials were able successfully to challenge the presence of
such materials on the lists and bring claims for misrepresentation. A general warranty not to use deleterious materials
is therefore thought to be a safer approach to avoid claims of this nature.
(c)professional indemnity insurance
Confirmation that professional indemnity insurance cover will be maintained by the warrantor up to a specified amount
for a specified period. The period will normally be either six years (if the warranty has been signed under hand) or 12
years (if the warranty has been entered into as a deed) from the date of issue of the certificate of practical
completion in relation to the development. The beneficiary is usually entitled to request evidence that the relevant
amount of professional insurance set out under the building contract/appointment is being maintained, and this can be
provided in the form of a broker’s certificate.
, (d) step-in rights to warrantor- usually purchaser of the development or funder
Confirmation that, on giving appropriate notification to the warrantor, the person to whom the warranty is given may
‘step into the shoes’ of the developer and, upon paying to the warrantor any outstanding fees or sums due, may instruct
the warrantor under the terms of the contract as though the person to whom the warranty is given had in fact been the
warrantor’s employer. This step-in right is essential for any contracting purchaser of the completed development or any
funder. If the employer becomes insolvent during the development process, it will be crucial for the contracting
purchaser or funder to ensure that the development is completed properly, and the best way of achieving this is to
instruct the team originally appointed to carry out the development. The right of step-in is not required or appropriate for
a tenant, who will enter into a lease only when the building has been completed and the risk of insolvency of the
employer has passed.
(e) irrevocable royalty free licence
In the case of an architect or other person providing design material, an irrevocable, royalty-free licence to use that
material in connection with the completion and subsequent maintenance of the development, with additional rights for
the beneficiary to sub-licence if required. The copyright in the design material will normally remain with the designer but
the person benefiting from the warranty will be able to use the material, though only to the extent that this is needed in
connection with the development. This is critical, as the design material is likely to include details of how the major
pieces of equipment or plant in the building operate.
(f ) limitations of the assignment of the benefit of the warranty
There will be limitations/prohibitions on the assignment of the benefit of the warranty and often commercial caps on
liability requested by the warrantor, who may also wish to state specifically that it shall be entitled to rely on any rights it
has under the underlying consultancy appointment in defence of any claim made by the beneficiary of the warranty.
This makes it vital for solicitors acting for the beneficiary of the warranty to undertake a specific review of the underlying
building contract/professional appointment at this point, to ascertain whether or not there are similar caps on liability on
which the warrantor will be able to seek to rely.
It is extremely unlikely that additional warranties will be offered by the building contractor or professional team after
they have been engaged, over and above those required under their terms of contract, even if an additional fee for
such warranties is provided to the building contractor or professional team. It is therefore essential that the
professional/building contractor is contractually committed to provide whatever warranties are required on the particular
project pursuant to the building contract or professional appointment.
Outcomes:
1. Evaluate the acceptability of a prospective tenant’s amendments to the architect’s collateral
warranties.
2. Explain the purpose and content of an agreement for lease
3. Advise a developer as to its rights and obligations under an agreement for lease.
Collateral warranties:
Entered into by someone who is engaged in the construction or design, thereby assuming a
contractual duty of care for the benefit of someone who has an interest in seeing that the building is
free from defects but does not otherwise have a relationship with the warrantor.
• Usually given by consultants, the main contractor and sub-contractors to the freehold buyer of
the development, his lender, the employer’s financiers and possibly the tenant.
• Developer may require one from the sub-contractors with whom he does not have a
contractual relationship with.
• Obligations given in collateral warranties should be no greater than the one in the letter of
appointment- such as the liability period.
Provisions of a collateral warranty:
(a) warrantor owes third party a duty of care
Confirmation that the warrantor (ie building contractor, sub-contractor or consultant) owes to the third party benefiting
from the warranty a duty of care similar to that owed to the person employing him. The warrantor will already owe a
duty of care to the person employing him, normally the developer, by virtue of being appointed under a contract by his
employer to carry out the design or construction work. It will oblige the warrantor to use reasonable skill and care in the
performance of his duties under the contract, and he will be negligent if he fails to do so.
(b) Confirmation that deleterious materials will not be used in the development.
A warranty given by the architect will confirm that such materials will not be specified for use in the development, and a
warranty given by the building contractor will confirm that such materials will not be used in the development. The
materials that are not to be used may be listed in the warranty, cross-referenced to the list appearing in the
appointment, or the warranty may exclude the use of materials that do not comply with British Standards or are known
to be deleterious. Listing deleterious materials in the warranty itself has been largely replaced by a general warranty
not to use deleterious materials. This is because certain materials which appeared on the lists included in warranties
were found not to be deleterious, and producers of such materials were able successfully to challenge the presence of
such materials on the lists and bring claims for misrepresentation. A general warranty not to use deleterious materials
is therefore thought to be a safer approach to avoid claims of this nature.
(c)professional indemnity insurance
Confirmation that professional indemnity insurance cover will be maintained by the warrantor up to a specified amount
for a specified period. The period will normally be either six years (if the warranty has been signed under hand) or 12
years (if the warranty has been entered into as a deed) from the date of issue of the certificate of practical
completion in relation to the development. The beneficiary is usually entitled to request evidence that the relevant
amount of professional insurance set out under the building contract/appointment is being maintained, and this can be
provided in the form of a broker’s certificate.
, (d) step-in rights to warrantor- usually purchaser of the development or funder
Confirmation that, on giving appropriate notification to the warrantor, the person to whom the warranty is given may
‘step into the shoes’ of the developer and, upon paying to the warrantor any outstanding fees or sums due, may instruct
the warrantor under the terms of the contract as though the person to whom the warranty is given had in fact been the
warrantor’s employer. This step-in right is essential for any contracting purchaser of the completed development or any
funder. If the employer becomes insolvent during the development process, it will be crucial for the contracting
purchaser or funder to ensure that the development is completed properly, and the best way of achieving this is to
instruct the team originally appointed to carry out the development. The right of step-in is not required or appropriate for
a tenant, who will enter into a lease only when the building has been completed and the risk of insolvency of the
employer has passed.
(e) irrevocable royalty free licence
In the case of an architect or other person providing design material, an irrevocable, royalty-free licence to use that
material in connection with the completion and subsequent maintenance of the development, with additional rights for
the beneficiary to sub-licence if required. The copyright in the design material will normally remain with the designer but
the person benefiting from the warranty will be able to use the material, though only to the extent that this is needed in
connection with the development. This is critical, as the design material is likely to include details of how the major
pieces of equipment or plant in the building operate.
(f ) limitations of the assignment of the benefit of the warranty
There will be limitations/prohibitions on the assignment of the benefit of the warranty and often commercial caps on
liability requested by the warrantor, who may also wish to state specifically that it shall be entitled to rely on any rights it
has under the underlying consultancy appointment in defence of any claim made by the beneficiary of the warranty.
This makes it vital for solicitors acting for the beneficiary of the warranty to undertake a specific review of the underlying
building contract/professional appointment at this point, to ascertain whether or not there are similar caps on liability on
which the warrantor will be able to seek to rely.
It is extremely unlikely that additional warranties will be offered by the building contractor or professional team after
they have been engaged, over and above those required under their terms of contract, even if an additional fee for
such warranties is provided to the building contractor or professional team. It is therefore essential that the
professional/building contractor is contractually committed to provide whatever warranties are required on the particular
project pursuant to the building contract or professional appointment.
