Third Party Rights In Scotland - All Change?

A new third party rights Act came into force in Scotland in February. Kirsty Olson asks whether it spells the end for collateral warranties, and can third parties adjudicate?

Key Points

• The Contract (Third Party Rights) (Scotland) Act 2017 comes into force on 26 February 2018
• Third parties will be able to enforce contract undertakings made for their benefit
• The parties can choose to exclude third party rights from their contract
• It is not clear whether third parties will be able to adjudicate
• It is expected that collateral warranties will still be used in Scottish building projects

Third party rights are a significant issue in construction projects. Numerous different parties may suffer loss if a building is found to be defective (for example, purchasers, tenants and funders). However, at the end of the day, there is only one construction contract to rely upon. If each of these parties is to recover its loss, another solution must be found.