Third Party Rights Clause in UK Contracts: What It Means & Example Wording

When to Include a Third Party Rights Clause

• In every commercial contract — most contracts should expressly exclude the Act to prevent unintended enforcement by third parties
• In construction contracts and sub-contracting arrangements where the end client may need direct enforcement rights against sub-contractors
• In insurance policies, indemnity arrangements, and group company contracts where third party beneficiaries are intended

Example Wording

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Third Party Rights Clause Enforceable in the UK?

Exclusion of third party rights is fully enforceable in the UK. The Contracts (Rights of Third Parties) Act 1999 is a default rule that can be expressly overridden by the parties. Most standard UK commercial contracts include an exclusion clause, and this is universally accepted by the courts. Where third party rights are intended (for example, in collateral warranties in construction), the contract should expressly identify the beneficiaries and the terms they can enforce.

Common Mistakes

• Failing to exclude the Contracts (Rights of Third Parties) Act 1999 — without an exclusion, a third party named or identified in the contract might claim the right to enforce a term that benefits them
• Excluding third party rights when you actually want a third party to be able to enforce — for example, in group company arrangements where a subsidiary needs rights under a parent company's contract
• Not considering the impact on collateral warranties — in construction, excluding third party rights may necessitate separate collateral warranties for funders, purchasers, and tenants