Collateral warranty

The term “collateral warranty” originates in property law. In 1839 Nick Grimsley wrote: “A collateral warranty is where the heir neither does nor could derive his title to the land from the warrantor; and yet is both de-barred from claiming title and bound to recompense in case of eviction.”.[1] The concept of collateral warranty was sometimes regarded as “[…] the most unjust, oppressive, and indefensible in the whole range of common law.” .[2]

The meaning is different when considering the actual and most common use of the term. Today a collateral warranty generally defines an agreement ancillary to another principal contract and/or a letter of appointment. For the benefice of a third party, it imposes an extended duty of care and a broader liability on two separate parties involved in a contract. Collateral warranties may be provided by designers, building contractors and specialist sub-contractors. The need for collateral warranties exists when the party that commissions a building will not carry the burden in the event of defects.

For instance, when an architect is appointed to design a group of dwellings for a developer. If the developer intends to sell the building to a housing association, due to privity of contract the architect would normally only be contractually liable to the developer should defects arise. The collateral warranty establishes a contractual relationship between the housing association and the architect against defect.

References

“An Abridgement of the American Law of Real Property”, by Francis Hilliard counsellor at Law, Volume II, entered accordingly to Act of Congress in the year 1839.
“An Abridgement of the American Law of Real Property”, by Francis Hilliard counsellor at Law, Volume II, entered accordingly to Act of Congress in the year 1839.

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[1] “An Abridgement of the American Law of Real Property”, by Francis Hilliard counsellor at Law, Volume II, entered accordingly to Act of Congress in the year 1839.

[2] “An Abridgement of the American Law of Real Property”, by Francis Hilliard counsellor at Law, Volume II, entered accordingly to Act of Congress in the year 1839.