What is a disadvantage of collateral warranties?

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Multiple Choice

What is a disadvantage of collateral warranties?

Collateral warranties extend rights from the main contract to third parties, such as funders, tenants, or future owners, so they can sue for defects or breaches as if they were party to the original contract. The big drawback is the complexity and admin burden of getting them signed and aligned. Because there are multiple parties involved (contractor, subcontractors, designers, and the third-party beneficiary), each warranty must be drafted carefully to mirror the main contract while giving the third party enforceable remedies. Negotiating terms, conditions, defect periods, insurance requirements, and limits takes time and coordination, so finalizing all warranties can slow progression toward practical completion and add significant administrative work. That makes completing collateral warranties a common practical disadvantage. Note: While costs and need for specialist lawyers can be factors, they’re not as pivotal as the difficulty and delay involved in finalizing multiple warranties with different parties. The statement that they do not apply to subcontractors is incorrect, since warranties can cover subcontractors as well.

Collateral warranties extend rights from the main contract to third parties, such as funders, tenants, or future owners, so they can sue for defects or breaches as if they were party to the original contract. The big drawback is the complexity and admin burden of getting them signed and aligned. Because there are multiple parties involved (contractor, subcontractors, designers, and the third-party beneficiary), each warranty must be drafted carefully to mirror the main contract while giving the third party enforceable remedies. Negotiating terms, conditions, defect periods, insurance requirements, and limits takes time and coordination, so finalizing all warranties can slow progression toward practical completion and add significant administrative work. That makes completing collateral warranties a common practical disadvantage.

Note: While costs and need for specialist lawyers can be factors, they’re not as pivotal as the difficulty and delay involved in finalizing multiple warranties with different parties. The statement that they do not apply to subcontractors is incorrect, since warranties can cover subcontractors as well.

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