Step-in rights in construction contracts
Step-in rights enable one party (the beneficiary) to ‘step in’ to the shoes of another party in relation to the rights and obligations of a contract, typically, if there has been a serious breach of contract.
Step-in rights can be used to enable a project to continue with one party being replaced by another. For example if the client becomes insolvent, the funder would be able to step into their position, complete the project and so potentially recover the money owed to them. This requires that the right is permitted through all relevant agreements, so that members of the project team cannot refuse to continue if the party is replaced.
As a consequence, step-in rights frequently appear in collateral warranties, for example between funders and contractors or consultants, or, to protect against the contractor (or a ‘prime’ consultant) becoming insolvent, between clients and sub-contractors or sub-consultants.
Typically, step-in rights will require notice periods, so that, for example, if the contractor or consultants are not paid by the client, they must give notice to the funder before terminating the contract, allowing the funder time to decide whether to step into the client’s position. Such agreements may include provisions for the funder to pay costs during this notice period, whether the step-in right is exercised or not.
It is important to note that this is a right not an obligation. For example, the funder is not automatically liable for amounts owed by the developer, they will generally only step into their position and so accept their rights and obligations if they issue a step-in notice to that effect. Where step-in rights are included under third-party rights (which can only impose rights, not obligations) they must be conditional upon also accepting the associated obligations.
As the beneficiary of step-in rights may lack the necessary expertise to take on the role of the other party, step-in rights may include provisions for the beneficiary to nominate another party to take on their role, sometimes with a guarantee from the beneficiary. For example, a funder may wish to dispose of the development, or to appoint a new developer to complete the project.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
Mental Health Awareness Week with ABS
Architects Benevolent Society programme of activity.
CLC publishes domestic retrofit competency framework
Roadmap of Skills for net zero.
May 13-19: Moving more for our mental health.
Understanding is key to conservation.
Open industry engagement survey seeks responses
Institutions and the importance of engagement.
National Retrofit Hub unveils new guide
Digital Building Logbooks and Retrofit: An Introduction.
Top 50 firms awarded 52bn of projects in the last year
New engineering data shows.
Enhancing construction site reporting efficiency
Through digitisation and the digital revolution.
Noise in the built environment
BSRIA guide TG 20/2021.
17,000 people suffer conditions as a result of exposure to excessive noise at work.
Turning down the noise: Auditory health
A pervasive risk with far-reaching consequences.
Getting the most out of heat pumps and heating
How heat pumps work and how they work best.
Plumbing and heating for successful retrofit and renovation
Low temperature underfloor systems and heat pumps.
Cost-of-living crisis and home improvement plans
Starting on the right footing and top tips for projects.
Delays on construction projects
Types, mitigation and the acceleration of works.
From Chaucer to Fawlty Towers.
Electrotechnical excellence, now open for entries.
Net zero electricity grids BSRIA guide NZG 5/2024
Outlining the changes needed to transition to net zero.
CIOB Global Student Challenge 2024
Universitas Indonesia wins for second year running.