Practical Completion – Matter of Fact or what the Contract says?
Practical completion has a number of important consequences under construction contracts. It signifies the end of a contractor’s exposure to liquidated damages, passes the risk of the works from the contractor to the employer and generally means that the works have been completed to a sufficient level / standard to allow the employer to take possession of the site.
Despite its importance practical completion is a concept easier to recognise than define. Standard form construction contracts often do not contain adequate definitions as to what will (or will not) constitute practical completion and the parties are therefore left to rely on the discretion of the party responsible for certifying practical completion as to whether as a matter of fact practical completion has taken place.
The recent case of Mears Limited v Costplan Services (South East) Limited, Plymouth (Notte Street) Limited, J.R. Pickstock Limited involved just such considerations.
J.R. Pickstock Limited (“Pickstock”) entered into a building contract with Plymouth (Notte Street) Limited (“PNSL”) to design and build two blocks of student accommodation in Plymouth. Mears Limited (“Mears”), entered into an Agreement for Lease (“AFL”), with PSNL to take a 21 year lease of the property following practical completion. Under clause 6.2.1 of the AFL, PNSL was prohibited from making any variations to the building works which materially affected the size of the rooms, with any reduction in size of 3% deemed to be ‘material’.
As the works advanced toward completion Mears alleged that there were a number of outstanding deficiencies, a key deficiency being that a number of the rooms were not of sufficient size. Mears subsequently obtained an injunction, preventing issuance of a certificate of practical completion until the issue could be decided at court.
The original decision of the Court found that one or more of the rooms were more than 3% smaller than the sizes shown on the relevant drawings and granted a Declaration to that effect, though he was not required to decide whether practical completion had occurred on the facts of the case. However, the Court also determined that such a breach of the AFL would not prevent the Employer’s Agent, from certifying practical completion and rejected Mears claim’s for Declarations to that effect.
On appeal the Court of Appeal upheld the first instance decision and found that, despite the rooms exceeding the tolerance levels, such a breach did not amount to a material or substantial breach, enabling Mears to terminate the contract.
Coulson LJ made the point that it would be commercially unworkable if every departure from the contract drawings enabled a party to terminate the contract. Accordingly, the parties had set out in clause 6.2.1 the circumstances in which departure from the room size specified on the contract drawings could amount to a breach of contract. However, Coulson LJ noted that under clause 6.2.1:
…the parties were not saying that the resulting breach of contract was itself “material”… There is nothing in clause 6.2.1 which addresses the character or quality of the breach. The clause simply provides a mechanism by which a breach of contract can be indisputably identified... if the parties were to be taken to have agreed that any failure to meet the 3% tolerance no matter how trivial, amounted to a material breach of contract, it would lead to a very uncommercial result.”
Coulson LJ highlighted that none of the standard forms of building contract provide any guidance or control as to what may or may not amount to practical completion but noted that there was nothing to stop parties in a construction contract agreeing particular parameters to guide and control a certifier in the exercise of his discretion regarding the certification of practical completion.
Though the appeal was dismissed Coulson LJ went on to confirm a number of principles regarding the current law on practical completion:
- Practical completion is easier to recognise than define and there are no hard and fast rules as to when it would be deemed to have occurred.
- The existence of latent defects cannot prevent practical completion.
- In relation to patent defects, there is no difference between an item of work which is yet to be completed and an item of work which requires remedying.
- The existence of patent defects will not prevent practical completion if such can be deemed to be trifling.
- Whether an item is trifling is a matter of fact and degree and to an extent may be measured against the purpose and intended use of the property.
- The inability to remedy a defect does not prevent practical completion from being achieved.
Though any decision on practical completion will always be highly dependent on the particular circumstances of a project, parties should carefully consider the intended purpose and functionality of the building and whether particular aspects are certainly required prior to practical completion and identified as such so as to provide granularity to guide and control a certifier in the exercise of his discretion as to whether practical completion has been achieved. If the parties intend for any specific consequences to be attached to a failure to achieve a particular aspect of practical completion, those consequences should be clearly specified.
Sponsor Licence Compliance: Key considerations & how to be audit ready
Join us for the third in our series of mini webinars on post Brexit immigration about sponsor licence compliance.
The Future of Property Careers
Join to our panel discussion and Q&A with industry leaders on the range of opportunities within the property and construction sector.
New tax on property developers - consultation paper published
The government published a consultation paper on the design of the new residential property developers tax.
Procuring modular housing: Is MMC becoming mainstream?
Is Modern Methods of Construction becoming mainstream? Read what it means for Development and Procurement here.
Dual class share structures: how do they work and what are the pros and cons?
Dual class share structures allow a shareholder, for example the founder, to retain voting control over a company.
Rupa Lakha quoted by Legal Week on the liberalisation of the Indian legal market
The proposed trade deal could be “the proper catalyst for liberalisation”.
Q&A: Talking the telecoms talk
Georgina Muskett and Jonathan Wills answer queries on Electronic Communications Code agreement.
Property Patter: Navigating the complexities of Pharmacy Property
Pharmacy property is a specialist area which contains many traps for the unwary.
COVID-19 Vaccination – can an employer make it compulsory for employees?
We review what legal issues to take into account when considering to make vaccination compulsory as an employer.
Linking ESG and Executive Pay
How does a business go about embedding a focus on strong ESG performance into the structures and culture of its organisation?
National Security and Investment Act granted Royal Assent
The Act establishes a new regime for the review of mergers, acquisitions and other transactions that could threaten national security.
Recent Trends In Firewall Legislation: BVI, Bermuda And Gibraltar
Charles Russell Speechlys advises Waverton on acquisition of Cornerstone Asset Management
Established in July 2010 and with offices in Edinburgh and Glasgow, Cornerstone offers wealth management and financial planning advice.
What do the new Debt Respite Scheme Regulations mean for Landlords and Tenants?
This will provide legal protection from creditors in the form of either a breathing space or a mental health crisis moratorium.
Charles Russell Speechlys promotes five to Partner
The promotions are effective 1 May 2021 and are accompanied by one Legal Director and 15 Senior Associate promotions.
Risk allocation in commercial leases: the High Court considers rent suspension, insurance and frustration arguments
Read our summary of the full judgement on the latest Covid arrears case.
Charles Russell Speechlys boosts private wealth offering with the hire of an international tax team
Robert Reymond will be joined at the firm by Leigh Nicoll, Emma Tyrrell and Oliver Cooper.
Rachel Warren quoted by Construction Law on the increasing pressure on the HSE over Covid deaths
The Health & Safety Executive is likely to face increasing pressure to take enforcement action where employees have died from Covid.
Proposed Takeover Code Amendments – Key Changes
The Consultation Paper has now been followed by a corresponding response paper which made certain modifications to the initial proposals.
Building Back Better: Future Gazing
What’s next for the hospitality industry post-pandemic?