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Provident & Co entered a tenancy agreement for Sky Ltd to rent an office in its building, and Sky subsequently transferred the lease to Atlantic Ltd. Sky's partners personally guaranteed Atlantic's lease to Provident, but Provident subsequently entered into a supplemental deed with Atlantic which contained a limitation clause stating that "in the event of a default in the lease, liability shall not extend to the personal assets of individual partners of Atlantic (the tenant) or any previous tenant." Atlantic has defaulted on the lease, but Sky's partners claim that although they were not parties to the supplemental deed, the reference to "any previous tenant" allowed them, as non-parties, to claim the benefit of the limitation clause, which thus protected them from personal liability.

Which statement best sums up the law in relation to whether the partners of Sky Ltd, as non-parties to the deed, are entitled to enforce the limitation clause against Provident under the Contracts (Rights of Third Parties) Act 1999?

Sky may have a right of action if there is a benefit to it, as the third party expressed in a term of the supplemental deed, even if it appears that the parties to the deed did not expressly intend it to do so.

A third party would only have a right of action if there is a benefit to the third party expressed in a term of the supplemental deed, as long as the parties to the deed expressly intended it to do so.

Although Sky was not a party to the supplemental deed, the non-express reference to "any previous tenant" would cover it, since under the Contracts (Rights of Third Parties) Act 1999 they are entitled to enforce this limitation against Provident.

Sky is entitled to enforce this limitation against Provident because the clause in the supplemental deed made grammatical sense.

Even though the limitation on liability did not contain an express provision allowing Sky to rely on it, its partners would be entitled to the benefit of the restriction by virtue of the Contracts (Rights of Third Parties) Act 1999.

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The meaning of the clause must be clear and express a benefit to the third party for them to enforce it under the Contracts (Rights of Third Parties) Act 1999. In Prudential Assurance Co Ltd v Ayres and Ors [2008] EWCA Civ 52, it was established that a third party can enforce a contract term if the contract explicitly states this or if the term purports to confer a benefit on the third party, provided the contract identifies the third party either by name or as a member of a class. The clause in the supplemental deed must therefore clearly and expressly confer the benefit on Sky Ltd or its partners to allow them to enforce it.

Key Point: The Contracts (Rights of Third Parties) Act 1999 allows third parties to enforce terms of a contract if the contract explicitly provides for this or if the term purports to confer a benefit on the third party. This principle ensures that contracts intending to benefit third parties can be enforced by those parties, provided the contractual language is clear and explicit.

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Contract LawUnit 2Chapter 6: Parties to Contract

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