• capability
• trust
• value for money

We go further – in our view the 3 items listed above are in that order – clearly if you aren’t capable, your client won’t be happy, that’s obvious. However, for us, trust comes before cost, although there is an overlap between all 3 vital characteristics since if a client feels they are being ripped off, they wont trust you. Developing good relationships with clients is also perhaps about taking the long view, since then, you truly become a trusted service provider.

So, what has all this got to do with interactive legal documents ?

Well. the fact is that many clients are fast becoming aware that there are some fantastic products out there where commonly used documents such as employment law documents, contracts and so forth, or commercial contracts, are available in excellent templated form from leading companies such as Epoq, via their product Mylawyer or Legal Zoom, a US company. These have moved the agenda forward considerably from the concept of simply buying a template. These companies offer a fully interactive document which can be tailored and which have excellent guidance notes explaining the meaning of many if not all of the clauses whilst you create a draft of your completed document.

The point is that it is in our view foolhardy to simply say to a client that these are still not with considering – clients are not fools, they understand risk and cost/benefit consideration. Isn’t it better, for example, with a start up company, to embrace the process, to be part of it, to be the lawyers that understand that they don’t have thousands to spend initially on legal documents, to be potentially retained to review the interactive document with the client ? This creates a sense of empathy and flexibility for the client, a situation of trust. The lawyers may well then be the trusted provider that the client returns to over the years, as they grow, for bespoke advice and more complex documents which are best provided in the traditional solicitor-client way.

In other words, there’s a place for saying no, but there’s also a place for saying yes, and to being open minded, for the benefit of a client, since this will often also benefit the lawyer.

If you have been mulling over the idea of starting up your own business then probably one of the questions which has been running through your mind is ‘Do I need a licence?’

In most cases (although see below) the answer is you don’t need a specific licence to start up a business so, if you have a plethora of exciting and original ideas for a new business circling round your brain, then why not pick the one that appeals the most and start doing a bit of research to see what kind of work and outlay would be involved.

We will discuss some of the factors you will need to take into consideration when planning to start your own business later on in this article but first let’s take a look at the types of businesses which will require a licence.

• If you intend to start up a business which involves lending money to the public then you will require a Consumer Credit Licence. A Consumer Credit Licence can be obtained from the Office of Fair Trading

• If you run a business which provides some type of organised activity or entertainment such as concerts, theatrical performances or sports events you will need to obtain a licence from your local council or the council of the town or city in which the event is due to take place

• If a part of your business will involve the sale of alcohol such as a café then you will also need to apply to your local council for a licence

• You will require a Waste Carrier’s Licence, obtainable from the Environmental Agency, if your business involves the transportation of waste products

• A licence from the local council will need to be acquired if you intend to start up your own taxi business

• A licence obtained from the Security Industry Authority will be required if you are planning to operate your own security business

• If you intend to start up your own street trading business but will not be a part of an organised street market then you will require a Street Trader’s Licence which, again, are supplied by your local council

• In some cases you may find that you will need a licence from your local council if you wish to run and let out a property to several sharing individuals such as a student house or digs

• If your business will involve operating buses, other service vehicles or goods vehicles weighing over 3,500kg you will need to apply for a licence from the Vehicle and Operator Services Agency or VOSA

Points to Remember when starting up a New Business

Target Market –

Before jumping in at the deep end it is imperative that you thoroughly research the demand for the product or services you are intending to offer and find out where your target market lies. For example, if you are starting up a baby clothes business the large majority of your target market will be mums. Try to tailor your business to appeal to this particular market.

Suppliers –

Although you don’t want to stint on quality you also don’t want to be out of pocket before you have even started. Choose a supplier who offers quality products which are reasonably priced and start off small with your first few orders until you are up and running. It’s also a good idea to look out for any special offers, discounts or end of range products that the supplier is offering.

Premises –

When choosing your business premises it is a good idea to start with a selection and slowly whittle them down according to your budget and requirements. Check out whether there are any hidden or extra charges and how much you will need to put back for business rates. You will also need to find out whether they type of business you are intending to run is authorised on the premises you have opted for otherwise you will need to obtain planning permission before you can start trading.

Advertising –

Advertising is the key to whether your business succeeds or fails so always ensure you device a good advertising strategy and remember to direct your advertising at your main target market.

The Risks of Exporting

There are greater risks when selling goods and services abroad, as you are now dealing with customers who are in a different country, and potentially speaking a different language. There is therefore greater scope for error and misunderstanding.

Risks include struggling to check overseas customers’ credit history, successfully dealing with foreign business cultures, ensuring a successful business transaction (particularly where the customer’s country is susceptible to political instability and economic disruption). Additional risks include problems associated with longer and more complex delivery schedules, unexpected changes to exchange rates, obtaining stable and sufficient overseas intellectual property protection and dealing with potential trade barriers in countries outside the EU.

How to Minimise the Risks of Exporting

Businesses that are thinking of exporting should conduct market research in order to comprehend fully the risks involved in expanding to supplying to a new country. A good thing to do will be to check whether the UK has a working agreement in place with the country you want to deal with, in attempt to reduce export risks.

In managing your finances for this expansion, consider taking out an export insurance policy. This is worth considering if you are dealing with values of over £20000.

Managing the Risk and Utilising Insurance Services

Insurance services, particularly those that provide risk management options, are focused on reducing the risks of exporting internationally. Which insurance you take out will depend wholly on the nature and type of your business, and what you plan on exporting.

If you enter a partnership with a credit insurer, they will tailor their service in order to suit your business needs.

It is possible to get an individual insurance policy for a specific deal. This is useful when your business is getting involved with one-off contracts. It suits situations where you do not need full cover insurance all of the time, yet would benefit from having cover for particular deals.

It is worth reading this guide to see if any of these options are right for your exporting needs – http://www.ukexportfinance.gov.uk/assets/ecgd/files/prods-servs/quickguides/quick-guide-to-ecgd-v7.pdf.

Another option to consider is a managed credit insurance scheme. This option  provides a full research package. This could include verifying customer details, verifying credit limits and managing and collecting debts. It is possible to find a company that provides this by searching on this website – http://www.biba.org.uk/Business/ConsumerHome.aspx.

Gaining Knowledge of your New Market

You should expect to make some visits to the countries that you are considering exporting to. By doing this it will be easier for you to conduct your market research. Although you will spending money in order to do this, it could save you a lot of money in the future (as you will be better informed of the market and what you need to provide and do).

Making Agreements with Markets Overseas

You can minimise your exporting, legal and financial risks by relying on investment promotion and protection agreements that the UK has with other nations. The UK currently has over 90 of such agreements, so it is worth checking whether the UK has an agreement with the country you want to deal with.

These agreements will include provisions for non-discriminatory treatment.

It is also worth checking where your business will stand in terms of double taxation. This can often occur where your company gets taxed in the UK, and then again the foreign country. The UK has also reached various agreements with other countries so that double taxation doesn’t occur, and so you only pay tax once.

Introduction

Retention or reservation of title clause in contract law is a type of clause in a contract for the sale of goods which expressly reserves the seller’s legal title to the goods until certain agreed conditions are fully fulfilled by the buyer.

Such clauses are crucially important in the context of business to business suppliers who often provide goods on credit assuming that the goods legally remain their property until fully paid for. This is however not the case under the Sale of Goods Act. The Act states that once the goods are successfully delivered to the client, the ownership legally passes to the client. Another important reason for ROT clauses is potential insolvency. If the contract does not include retention of title clause and the buyer subsequently goes into insolvency without paying for the goods, the supplier will not be able to simply repossess the goods.

Types of ROT Clauses

There are three main types of retention of title clauses:

• Simple ROT provisions provide the seller with certain rights in respect of the selected goods that have not yet been paid for. This can include the right to repossess in the event of the buyer’s insolvency;
• All monies clause – this clause gives the seller rights over all goods that were supplied by the seller providing that some monies remain outstanding. Therefore, even if a majority of the invoice for the goods has been paid the seller still preserves his rights over all goods. This clause is particularly useful in cases where the buyer partially pays for the goods but later becomes unable to settle in full. It is also prudent to ensure that all monies clause is included in a separate sub-clause to ensure that if it is held invalid it does not affect the core ROT clause;
• Extending ROT clauses – these are more complex clauses that usually require a formal charge to be registered at the Companies House. An extending ROT clause provides the seller with a right to proceeds from profits made by the buyer using the goods provided by the seller. This usually means that the seller is entitled to proceeds from sale of a final product in which the goods have been incorporated.

Sample Retention of Title Clause

A basic ROT clause could read as follows:

The Goods shall remain legally owned by the Seller and the legal ownership to the Goods shall not pass to the Buyer until the price for the Goods has been settled in full and successfully received by the Seller.

This clause could be further extended by additional sub-clauses such as the all monies clause or stipulations regarding repossessions.

The following are the most common extension of basic ROT clauses:

• A clause entitling the seller to enter the buyer’s business premises and repossess the goods;
• A clause requiring the buyer to keep the seller’s goods in a separate storage and ensure that the goods can be easily identified;
• A clause requiring the buyer to allow the seller to access its business premises at a reasonable notice to verify that the goods are stored in accordance with the agreement;
• A clause providing that liability for damage or loss passes to the buyer upon delivery rather than along with the title;
• A clause putting an obligation on the buyer to insure the goods with a reputable insurance broker;
• A clause providing the seller with a right to demand an immediate payment or repossess the goods should be included along with a comprehensive list of insolvency related trigger events upon which occurrence such clause would take effect.

Please note that this is a very basic clause and in most cases the following points and a further legal advice specific to your circumstances should be sought before proceeding with any agreement.

Goods in transit by road or rail

• CMR note

The Carriage of Goods by Road Act 1965, has brought into the UK law the Convention on the Contract for the International Carriage of Goods by Road recommended by the United Nations Economic Commission for Europe. The CMR note is essentially a standard template of terms and conditions that apply to goods in transit by road. The note applies to international transportation of goods between two separate legal entities based in two different contracting countries. At the moment most of the EU and some non-EU countries are signatories to the convention. Some of the non-EU members that are a party to the CMR include: Switzerland, Ukraine, Bosnia and Herzegovina and Kazakhstan.

The CMR note is an important document that proves that the road courier has received the goods and that a valid ‘goods in transit by road’ contract exists between you and the courier. Importantly, however you are still responsible for the goods in transit.

The current liability limit under CMR is £8.03 per kilo, but this can be subject to change as limits are set in accordance with fluctuating Standard Drawing Rights.

• Completing CMR Note

Although, you freight forwarder can fill the form in for you it is a good practice to do it yourself as you remain liable for its accuracy. Every CMR note has to include the following basic details:

• The date and location at which the CMR note has been filled in.
• Details of the sender, the courier and the addressee (also known as the consignee).
• Clear information about the goods and their packaging. The information has to be satisfactory both to you and the ultimate recipient. It does not need to obvious and does not need to clearly identify the goods, as in fact this may be insecure.
• The overall weight of the cargo.
• Any relevant charges associated with the goods in transit, including any customs liabilities or carrier fees.
• All relevant forms for customs officers.
• If the goods are dangerous that should also be clearly stated.

International Transit of Goods – The TIR

• The system is extremely useful as it allows for the transporting vehicle to cross borders of many countries without repeated checks by local custom authorities. The goods are only checked and sealed once at the outset and their final destination. The TIR system does not apply within the European Union as goods in transit within the European Union do not require multiple checks anyway.

Goods in transit by rail, sea and air

• CIM – Goods in Transit by Rail

CIM is an equivalent of CMR for goods in transit by rail. Similarly, CIM note contains the basic details and regulated the relationship between you and your carrier. In accordance with the standard CIM terms, carriers accept responsibility only for loss or damage while the goods are in their possession. Any additional cover must be purchased separately from a transit insurance broker.

• Hague Visby Rules – Goods in Transit by Sea

The Hague Visby Rules are standard set of rules governing transport of goods by sea between most European countries. Notable exception is the US where stricter Hague Rules apply. Standard Hague Visby Rules state that the carrier must issue a bill of lading clearly displaying information about the goods including condition, overall weight and quantity. The sender himself is responsible for provision of accurate information about the goods, providing appropriate packaging and making claims within set limits. The carrier must exercise skill and care when loading, handling, carrying and finally discharging the goods at the destination port. Compensation levels are fixed and agreed per package or kilograms at the destination port. Carriers can however deny their liability for events such as fire or dangers of the sea such as storms etc.

• Warsaw and Montreal Conventions – Goods in Transit by Air

Vast majority of transported goods is carried by passenger airplanes. The Warsaw and Montreal Conventions cover contractual rights, liabilities and obligations of the sender and the carrier.

What is it?

The Office of Fair Trading (OFT) is a governmental body that aims to ensure that the market is consumer-friendly. The OFT’s mission is to enforce strong consumer protection and competition law which prohibits unfair practices. The OFT exists to control the competiveness of businesses and promote consumers’ interests.

Why is competition good?

If there is only one source for a product, that source may provide a product of deficient quality for a very high price knowing that if consumers want the product they have nowhere else to go. Where several sources of a product compete for the custom of a pool of consumers it is in their best interests to provide the highest quality product for the lowest price to prosper in that market. Some sources will make their products more suitable to certain groups of people in order to target a sector of the pool of consumers. In this competitive environment consumers are offered high quality goods at a good price and the range and variety of those goods is more likely to be suited to their specific individual needs and wants.

What can go wrong?

There are a number of ways to breach the rules of competition law. Companies who trade in the same industry can meet together and arrange how to price the goods they offer. This is called price fixing and means that the consumer is no longer getting the most competitive price on what they buy. Businesses that have a large share of a particular market are in a position which they could easily abuse and must abide by a stricter set of rules as a result. There are also many laws in place to protect consumers in their day-to-day transactions. All of these are regulated, monitored and enforced by the OFT in an effort to make markets work well for consumers. The maintenance of competitive markets is not only good for consumers but for the business operating in those markets as well as the economy as a whole. The government would hope that the taxpayer’s money spent on the running of the OFT is recouped by its positive effect it has on the country’s economy.

What does the OFT do?

Much of the OFT’s work lies in informing and educating consumers about their rights and recommended good practice in avoiding getting stung. This way, problems can be stopped from happening rather than trying to deal with a situation that has already gone wrong. The OFT further promotes self-regulation, fair practice and educates businesses about the various laws which regulate their operation by working with businesses themselves.

The OFT keeps a constant eye on the operation of markets and trading behaviour in order to react when necessary. They monitor various sources to gather intelligence on trends and behaviour and log complaints from all sources. If a complaint is made on mass or by a very reputable source then the OFT act on it by investigating. They also identify areas which need to be analysed to a higher level and organise studies and surveys to fulfil that purpose.

The nature of the work is such that the OFT must decide which areas need the most work rather than where the problem is. Hence they actively prioritise in order to best use the resources they have on the most pressing problems.

The OFT cannot manage all their tasks on their own and use a series of connections to best fulfil their role. They work in unison with the national courts, other government organisations, the European Commission, Trading Standards and regulators. The maintenance of good relationships with these entities is essential in the smooth operation of the OFT.

The powers

The OFT act under many powers granted to them by various acts of parliament. These include powers to investigate illegal conduct, prosecute companies who are suspected of breaching legislation and impose penalties on businesses who have been found to have acted illegally.

The OFT fulfils many roles and as business practices change so must the role of the OFT. What must remain the same and at the heart of the OFT is their dedication to achieving legal, fair and effective markets for consumers.

Two types of trade secrets

There are two informal types of trade secrets. Firstly, there are those inventions or industrial processes that do not meet the requisite patent criteria and therefore can only be protected though confidentiality. The most common examples of such trade secrets would be client databases (lists of customers). Secondly, there are trade secrets that are creative, original and innovative enough to satisfy necessary patentability requirements. In the latter case, inventors face a natural dilemma of whether they should apply for a patent or keep the invention as a trade secret.

How to protect trade secrets?

To protect trade secrets, you should ensure that anybody who has access to them signs a Non-Disclosure Agreement, breach of which will enable you to sue for breach of confidence. The main advantage of NDAs is that they can be renewed indefinitely and therefore, at least in theory, assure prolonged monopoly. The main disadvantage is that unlike for instance patents NDAs do not prevent competitors from independently inventing the same trade secret, be it a design, pattern or process.

Alternatively, as mentioned above if a particular invention fulfils the necessary criteria it can be registered as a patent and fully protected against any competitors.

Advantages and Disadvantages of Trade Secrets

Core advantages of trade secrets include:

• Unlike patents, trade secrets offer protection for unlimited amount of time, so long as the secret is not revealed to the public it is safe. By comparison patent protection is limited in time (typically for 20 years), however offers a monopoly for the use of the patent.
• Also unlike patents, trade secrets do not involve registration fee, which in some cases can be considerable. On the other hand, costs of keeping the secret in full confidence might turn out to be higher than initial costs of obtaining a patent.
• In order to gain protection with patent one has to go through entire application process. Trade secrets require no registration and verification process, having immediate effect.

Despite some clear advantages, there also are considerable disadvantages of protecting confidential information as a trade secret.

• If the trade secret is contained within a product (i.e. computer software) or is a design itself, the competitors may be able to reverse engineer it and implement it freely into their own products. So long as the information was not divulged in breach of Non-Disclosure Agreement, the owner of the trade secret would have no recourse. This leads to another problem, enforceability.
• It is more difficult to legally enforce a trade secret than a patent.
• Once the secret becomes known to the public, anyone can freely use.
• Keeping a trade secret bears another risk of somebody legitimately developing the same patentable trade secret and obtaining a patent for it.

Should I apply for a patent or keep the information as a trade secret?

There is no simple answer to this question. Selection of the most suitable Intellectual Property plan for your business’ goodwill depends on a number of sector-specific factors. For example, if your business specialises in highly innovative solutions that are not available currently on the market, it might be a good idea to secure a patent and profit from licences. On the other hand, if you think that the invention is unlikely to be discovered by competitors as it is not embodied in the ultimate product (i.e. cannot be easily inspected by the competition) it might be worth keeping the invention as a trade secret. This is especially true if you know that the competition is not likely to catch up with your invention for another 20 years (which is typically the period patents are granted for).

What is succession planning?

There are two types of succession planning:

1. Owners transferring ownership to a new owner; or
2. Identifying and developing employees so that they can groomed to be future leaders, managers or other critical post holders.

Some organisations, especially smaller ones, ignore succession planning. Succession planning should not be underestimated as it can be critical for the future success of the organisation. It takes a lot of time and planning to do correctly and therefore it should be considered as early as possible, some would even recommend that it is given some thought at the very start of the business.

Transferring ownership

This type of succession planning is usually considered by smaller businesses and involves transferring control of a business to new management, usually to: family, internal members, or third parties. However, it could also mean liquidating the business.

Transferring ownership is never easy for business owners, particularly if they have been in business for a long time because they become too attached. However, succession planning is a complicated procedure and requires careful thought and planning. It should be a decision made with your business strategy in mind instead of your heart. For example, if the business is expanding abroad, you need to pass the reins on to someone who will be able handle such responsibility.

Choosing the correct successor at the correct time is the best way for the business to succeed. When choosing who to transfer the business to you should begin by considering the obvious choices such as a family member or someone who has worked for the organisation and knows it well. If you choose to transfer your business to someone internal then you should begin training them as soon as possible. If they do not possess the required skills or if this is not possible for any other reason then consider external options, particularly if you are in immediate need of the proceeds of sale or want to exit immediately i.e. to start a new business or to retire. In order to sell a business to a third party you have to make sure that the business is an attractive option to any potential suitor, not only so that the business can succeed but also that you can get the best value for it.

Ultimately it may not be possible to sell your business or you may not want to, in which case you are probably going to consider voluntary liquidation, which basically means shutting the company down. Although bear in mind this is likely to be one of the least profitable options for a business owner.

Identifying and developing employees

In larger businesses, succession planning is the process by which employees are considered for key jobs. The idea is to identify short term targets who can take over posts almost immediately or long term targets that can be trained for future roles within the company.

Succession planning is usually undertaken by line managers, who will identify employees within their teams. These employees are then further evaluated by Human Resources (HR) and more senior managers. Employees are also be given the opportunity to have their input about their own career aspirations and employers should work with them to identify their development needs; this is usually done through appraisals.

The advantages of succession planning for larger organisations is that it means the company is able to manage transition periods in a much more smoother and more efficient manner. This is because appointing new managers will be a quicker process and the new managers will be familiar with the workings of the organisation. It also boosts employee morale as it portrays the company as one that recruits from within. This is better for employee retention and productivity.

Of course, there is no guarantee that the employers identified early in their careers will remain with the organisation or that they will be able to fulfil their potential, in which case external appointments may have to be made. Nevertheless, the idea is that the company develops a talent pool from which it can appoint successors whenever possible.

Assignment is the transfer either a right (which is obtained through a contract) or an interest in property to another person. It is possible to assign various rights in a contract to a third party, without the consent of the other party to the contract. An assignment can either be equitable or legal.

It is important to be aware of the fact that assignment only transfers rights to another. If you want to transfer obligations under a contract, this should be done through the method of novation.

Legal Assignment

The legislation surrounding a legal assignment is outlined in section 136 of the Law of Property Act 1925. There are various requirements necessary for an assignment to be legal. The first is that in an agreement, it is only the benefit that can be assigned. This has been mentioned above. The second requirement is that the assignment needs to be absolute. The third requirement is that any assignment should be in writing, signed by the person who is assigning. The fourth requirement is that the rights need to be wholly ascertainable. The last requirement is that in order for the assignment to have effect, notice must have been given to the other party.

Equitable Assignment

It may be possible to have an equitable assignment if various legal requirements for an assignment have not been met. It is possible to create an equitable assignment using two methods. The first is that the person who wishes to assign his rights (the assignor) can contact the person he wants to assign his rights to (the assignee) and tell him he wants to transfer his rights. The second method of creating an equitable assignment is by giving the instruction to the other parties of the contract/agreement to release their burden to the assignee rather than the assignor.

It is important to note that under an equitable assignment, it is not necessary for the assignment to be in writing. It is also not necessary for the notice to be received. The main differentiation between an equitable and legal assignment is that under the former, should the assignee wish to pursue a claim against a third party, he will have to do this jointly with the assignor.

What Assignment Achieves

Assignment does not make the assignee a party to the original contract. Furthermore, assignment does not establish a contract between the party who has not assigned and the assignee. Its aim is merely to transfer a right/benefit in a particular agreement/contract from an original party to the contract to a third party. Assignment does not involve the transfer of the burden (obligation) of a contract (although this can be done in a different way known as novation), so it is important to remember that liability for the burden remains with the assignor, irrespective of who he assigns the benefit to.

If you are entering a contract/agreement, and do not want it to be possible for the other party to assign their benefit to any third party, it is possible to prevent this from happening. The way to achieve this is to ensure that in the negotiations for your contract/agreement, there is a condition that the contract contains a restriction on assignment.

If you are thinking about assigning a particular right/benefit to a third party, it is advisable to seek legal advice on the consequences this could entail. It is important to ensure you are well-informed before you assign any right or benefit over to a third party.

A collateral warranty is a contractual arrangement that is directly connected to another principal contract. In other words, it is “collateral” to the main contractual arrangement. Collateral warranties are particularly popular in the building industry. Typically, the principal contract is a building contract or agreement with a consultant or sub-contractor. A collateral warranty is normally provided by a person or company appointed under the principal contract (such as the sub-contractor or consultant), and a third party that is not the beneficiary under the main contract, such as a lender or buyer, Although, collateral warranties are nothing more than collateral contracts, it has become customary in the industry to refer to them as collateral warranties. Since, collateral warranties are normally executed as deeds they are also known as duty of care deeds.

Why are collateral warranties executed as deeds?

Executing legal documents as deeds provides additional protection. Firstly, as opposed to standard contractual arrangements, no consideration is required for the contract to be valid. Therefore, the contract executed as deed is perfectly enforceable despite the money not being exchanged. Secondly, the limitation period for bringing a claim is extended from six to twelve years.

What are the advantages and disadvantages of collateral warranties?

Advantages

As most commercial development projects are financed by institutional lenders such as banks, collateral warranties are typically a necessity. Collateral warranty is legally designed to enable a third party with interest in completion of the project to pursue a legal claim against another party involved in that project. Warranties are typically provided by architects, contractors and various engineering companies (i.e. structural or electrical) and give lenders a form of legal recourse in case the project is delayed or stalled completely. It is common for lenders to also negotiate step-in rights along collateral warranties. Step-in rights provide lenders with the right to ‘step into the shoes’ of the developer and sue sub-contractors to ensure smooth completion of the project and recovery of lender’s money.

Disadvantages

Potential for joint and several liability is the main point of concern for those providing collateral warranty. It is perfectly possible that a warrantor could bear the full cost of remedying the defect while in practice being only partially liable for the fault.

Collateral warranties: main provisions

Every collateral warranty should at least cover these core clauses:

• Standard of care and skill – collateral warranty should require the warrantor to exercise reasonable skill and care. The warranty should also cover any potential breaches of terms that might be contained in the letter of appointment. Ideally, for the beneficiary no other party should be entitled to the same rights under warranty, as this increases the chances of recovery (if more than one party sues this might raise issues of warrantor’s solvency).
• Insurance – a requirement to maintain insurance at all times is an absolute necessity.
• Assignment of the warranty – one or maximum two assignments are normally allowed so long as prior notice is given to the warrantor.
• Prohibited materials – this clause is usually binding on architects who undertake not to include, in the specification, use of prohibited materials.
• Alternative dispute resolution – it is always prudent for the collateral warranty to refer to alternative dispute resolution in the case of conflict (i.e. conciliation is quite commonly used).
• Termination of appointment – the collateral warranty must include a minimum notice period to be given by the warrantor before he takes steps to end its appointment.
• Liabilities – the collateral warranty must not limit other rights and remedies that may be available to the beneficiary under other arrangements (i.e. collateral liabilities). The warrantor should ensure that he is not accepting a great standard of liability then the one imposed by the primary contract.
• Time period – a collateral warranty is usually enforceable for a period of six year, unless executed as a deed in which case this period is extended to twelve years.