Third-party rights: Overview, definition, and example
What are third-party rights?
Third-party rights refer to the ability of someone who isn’t directly part of a contract to enforce certain terms of it. Usually, contracts only affect the parties who signed them. However, in some cases, the contract may grant specific rights to a third party, allowing them to benefit from or enforce parts of the agreement.
For example, a contract between a company and a contractor might include a term that benefits the contractor’s supplier. If the contract explicitly allows it, the supplier (a third party) could enforce that term.
Why are third-party rights important?
Third-party rights are important because they extend the impact of a contract beyond the original parties. This can add flexibility and clarity to business agreements, especially in situations involving complex supply chains, partnerships, or stakeholders who aren’t directly involved in signing the deal.
For businesses, clearly defining whether or not third parties have rights is crucial. If these rights are included, the contract must specify who qualifies as a third party and what rights they have. If they’re excluded, a “no third-party rights” clause ensures that only the contracting parties have legal standing to enforce the agreement.
Understanding third-party rights through an example
Imagine a company hires a logistics firm to deliver goods to a retailer. The contract includes a clause stating that the retailer (a third party) can enforce the logistics firm’s obligation to deliver the goods on time. If the logistics firm fails to meet this obligation, the retailer could enforce the contract even though they didn’t sign it.
Now consider another scenario where the contract explicitly states, “No third party shall have the right to enforce any terms of this agreement.” In this case, the retailer would not have the right to take legal action based on the contract.
An example of a third-party rights clause
Here’s how a third-party rights clause might look in a contract:
“A person or entity who is not a party to this Agreement shall have no right to enforce any of its terms unless expressly stated otherwise in this Agreement, pursuant to applicable law.”
Conclusion
Third-party rights allow someone who isn’t part of a contract to benefit from or enforce its terms, but only if the contract explicitly allows it. These rights can simplify complex arrangements but must be clearly defined to avoid unintended consequences.
By including clear terms about third-party rights in your contracts, you can control who has the authority to enforce the agreement and ensure that all parties understand their roles and limitations. It’s a simple way to add clarity and protect your interests.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.