Jurisdiction(s):
United Kingdom

Key definition

Collateral definition

What does Collateral mean? Collateral describes the assets or rights a borrower (or a third party) provides to a lender to create a security interest securing repayment or performance. If the borrower defaults, the secured creditor can enforce against the collateral to satisfy the debt. The term is a descriptive commercial expression rather than a single statutory definition. However, “financial collateral” is defined in the Financial Collateral Arrangements (No. 2) Regulations 2003 (UK) and the European Communities (Financial Collateral Arrangements) Regulations 2010 (Ireland). Collateral commonly includes land, plant and machinery, shares, bank accounts, receivables, intellectual property and cash. Security is typically taken by mortgage...

Collateral warranties: drafting and case law on 'no greater liability' and equivalent defences, set-off, contributory negligence and limitation periods

Published by a LexisNexis Construction expert

Practice notes

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’No greater liability’ provisions frequently appear in Collateral warranties (and third party rights memoranda). They are intended to ensure the warrantor’s exposure under the Warranty mirrors, and does not exceed, that assumed in the original Contract. Yet the wording of such provisions is often contested and, on occasion, gives rise to outcomes the parties did not intend. Poorly balanced formulations may, therefore, distort the allocation of risk that the parties thought they had agreed from the outset or envisaged.

Collateral warranties—general principles

Commercial practice generally accepts that when a party grants a warranty collateral to an underlying agreement, it should not assume obligations or duties under that warranty that are broader or endure longer than those owed under the original agreement. Indeed, professional indemnity policies commonly withhold cover for collateral warranty claims where the liability stems from obligations more burdensome than those in the original or underlying contract. In British Overseas Bank v Stewart Milne, the court acknowledged that the basic commercial Purpose of collateral warranties is central when interpreting their terms...

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Web page updated on 21/05/2026

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