What is a collateral warranty?

• A. Collateral warranties are agreements that are associated with another 'primary' contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.
• B. A warranty on materials
• C. A payment guarantee
• D. A termination clause

Answer: (A)

A collateral warranty is a separate agreement that sits alongside the main contract and makes a party who is part of that contract extend their duties to someone who isn’t a signatory to the original deal. This means a third party—such as the client, a funder, or a future occupant—can rely on the professional or contractor’s promises and sue for negligence or breach of duty if things go wrong, even though they weren’t part of the main contract. It protects the third party’s interests and clarifies responsibility for design and construction quality. It isn’t simply a warranty on materials, a payment guarantee, or a termination clause—those tools address different issues and do not create enforceable rights for a non-signatory to the main contract. In practice, collateral warranties are common when clients want assurance that designers or contractors remain liable to them for defects or ongoing duties beyond the terms of the original contract.