Collateral Warranty

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A collateral warranty is a contract which gives a third party rights collateral to rights in an existing contract entered into by two separate parties.

For instance, an architect is appointed to design a block of flats for a developer. That developer intends to sell the block of flats to a Housing association. Due to Privity of contract the architect would normally only be contractually liable to the client should defects arise. The collateral warranty establishes a contractual relationship between the Housing association and the architect against defect.