Defects in buildings are considered by the courts as an economic loss which can only be recovered through a contractual relationship and not by tort.
Having a proper building contract in place will cover contractors’ and consultants’ obligations under the various conditions and the contractual warranties included in the terms of the contract or professional appointments. However, when a third party, such as a funder or a purchaser, becomes involved there is often no contractual link between them and the contractor or consultants. A collateral warranty will create a separate contract between the third party and the contractor or consultants so that they have the same rights as those under the building contract. The developer or employer may also need to establish collateral warranties from any subcontractors involved as they may find they are a third party to the sub-contracts.
Contractors and consultants cannot draw up a collateral warranty to a third party unless there is a building contract or professional appointment in place with the developer. Employers or developers who may be working without contracts will find that they are unable to offer contractual protection to purchasers. For any equipment installed in the development, e.g. air conditioning units, a manufacturer’s warranty or product guarantee will normally be issued by the manufacturers, but can also be provided by the subcontractors installing the equipment. These warranties can range from certificates to detailed terms and conditions and are mostly used to guarantee the quality or durability of the products depending on installation and maintenance requirements.