Although Marie Kondo might be the 21st minimalist icon, back in the 19th century William Morris said:
have nothing in your houses that you do not know to be useful or believe to be beautiful
We can apply this approach to contracts. What do we know to be useful or believe to be beautiful? Until the advent and use of legal design, I think we can safely say that there was nothing in contracts that was even remotely intended to be pleasing to the eye!
In this series of posts, I’ll consider the clauses in specific types of contracts that we know to be useful. My view of useful is that it is either:
- absolutely necessary ie it makes the contract certain enough to be enforceable under English law, or
- critical to reflect the needs of the parties or make the contract workable.
Minimalist collateral warranty
A collateral warranty is a simple document designed to create contractual links between the provider of goods, works or services (the warrantor) and a party with a financial interest in the project (the stakeholder).
A warranty needs to (1) recite the existing agreement, and (2) include a promise from the provider to comply with the terms of that agreement.
This is referred to in Chapter 9 of my book on the subject as the collateral claim: the right for the beneficiary to bring a claim for breach of the project contract as if it was a party to that contract.
Optional extra
A warranty may also include a right for the beneficiary to take over or step-in to the project contract if that project contract would otherwise end. I call this a procedural claim.
Not all beneficiaries or stakeholders need such rights, and they mostly apply during the construction phase. They tend to be limited to:
- forward-funder with contractor and key consultants or subcontractors
- developer or landlord with key consultants or subcontractors.
What should you do?
Beyond these two rights, consider carefully whether your collateral warranties really needs to add clauses from our graveyard. Are they useful? … because they aren’t beautiful!
This post is taken from Chapter 9 of to How to Write Simple and Effective Collateral Warranties in Just 500 Words, available from Amazon in paperback and kindle.