At common law only a party to a contract can enforce it. The Contracts (Rights of Third Parties) Act 1999 changed that. Section 1 allows a person who is not a party to a contract to enforce a term of it if the contract expressly provides that they may, or if the term purports to confer a benefit on them and there is no contrary intention. In construction, this lets an appointment grant enforcement rights directly to funders, purchasers and tenants without a separate collateral warranty for each.
A third-party rights schedule attached to the appointment can therefore do much of the work that a stack of warranties would otherwise do, and many funders now accept them. The liability created mirrors the appointment, just as a warranty should. Compare the entry on collateral warranties.
From a cover perspective, third-party rights raise similar questions to collateral warranties:
Section 2 of the Act deals with when the contracting parties can vary or rescind the term without the third party's consent. Once a beneficiary has relied on the term, or the parties know they have, consent may be needed. Well-drafted construction schedules usually exclude section 2 so that the original parties retain freedom to vary, which is a point the professional should check.
A third party enforcing a term takes it subject to the defences available under the contract. Whether such a beneficiary can adjudicate depends on the drafting and on the same statutory questions that arose in the collateral warranty context in Abbey Healthcare v Augusta 2008 LLP [2024] UKSC 23.
Third-party rights schedules are efficient, but some funders and their lawyers continue to prefer collateral warranties because a warranty is a familiar standalone document that can be assigned and enforced without reference back to the underlying appointment. Where both are used on the same project, the professional should ensure they are consistent, so that a beneficiary cannot pick the more favourable of two overlapping routes. The practical goal is a single, coherent liability position to third parties that matches the appointment, whichever mechanism delivers it, rather than a patchwork that quietly widens the firm's exposure.
Apex reviews third-party rights schedules alongside appointments for architects, engineers and design-and-build contractors, so a firm can see whether the rights granted stay within the professional indemnity cover. The sector guides for architects, engineers and design-and-build contractors give the wider context.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.