Civil Engineering Reference
In-Depth Information
may diminish the value of that security. In addition, the funder will wish to have the
optionofensuringthatthedevelopmentiscompleted(andthevalueofthesecurity
therefore maximized) in the event of the developer becoming insolvent prior to com-
pletion. This is achieved by exercising 'step-in rights', see Section 13.3.6.
From a funder's perspective, a collateral warranty from the quantity surveyor or
other consultant administering payment is also important. Interim valuations under
the building contract will normally be carried out by the quantity surveyor or other
consultant on behalf of the developer and will, ordinarily, be reflected in payments
to the contractor. In turn, drawdowns from the funder's loan to the developer will
typically reflect the amount of such valuations and payments, hence the need for the
funder to secure some degree of comfort in relation to the actions of the quantity
surveyor.
Purchaser/tenant
Since the decision in
Murphy
it is clear that, except in very special circumstances, a
purchaser or tenant will have no claim in delict against a contractor or consultant
with whom the purchaser or tenant has no contract, hence the need for purchasers
and tenants to protect themselves against the manifestation of latent defects caused by
faulty design or construction. he principle of
caveat emptor
(buyer beware) applying
in contracts for the sale of heritable property prohibits any recourse against a seller,
and the obligations undertaken by tenants under a typical commercial full repairing
lease will require them to make good all damage to the leased property howsoever
caused (notwithstanding that it may be due to a latent defect) without recourse to
the landlord. he case of
Royal Insurance (UK) Ltd
v.
Amec Construction Scotland Ltd
and Others
(2005),anactionraisedpursuanttoacollateralwarranty,demonstratesthe
potential commercial significance to a tenant of the rights under a collateral warranty.
Sub-contractors
Collateral warranties from domestic sub-contractors in favour of interested third par-
ties may be regarded as 'belt and braces'. In other words, primary liability will lie with
the main contractor under their collateral warranty and additional warranties from
sub-contractors will need to be enforced only in the event that recovery cannot be
made from the main contractor, notwithstanding that liability is established. How-
ever, a sub-contractor's collateral warranty may also fulfil an important purpose of
ensuring, by means of step-in rights to the employer, that the sub-contractor remains
committed to price and to performance in the event of termination of the main con-
tract. See also Section 11.7.1.
Design consultants
It is common practice for external professional consultants, engaged in relation to
a traditional form of contract, to be required to give collateral warranties to third
