Define third-party rights in contracts.

Third-party rights in contracts refer to the rights held by individuals or entities who are not directly involved in the contract but may be affected by its execution or terms. This concept acknowledges that while contracts are typically formed between two parties, the implications of those agreements can extend beyond them to impact others.

For example, consider a situation where a contract is created for a service provider to perform work for one party. If that work affects a neighboring property or a community, those who are not parties to the contract may still have rights or a stake in the outcomes of that contract. Typically, these rights can include the ability to enforce certain provisions or to claim damages if the contract is breached in a way that harms them.

In contrast, the other options do not accurately describe third-party rights. Rights that are only applicable to the contracting parties do not include any external parties' interests or claims. Rights allowing third parties to negotiate terms imply an involvement in the contractual agreement, which contradicts the essence of being a third party. Lastly, rights that automatically transfer ownership would pertain to property rights or asset transfers rather than the rights stemming from the original agreement of parties involved, which is the focus of third-party rights.