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The meaning of practical completion of your construction project: don't leave it to the contract administrator (or the court) to decide

The recent Technology and Construction Court judgment in the case of Mears Limited v Costplan Services (South East) Limited & Others [2018] provides lessons of interest to all developers and any parties taking leases or transfers of property in reliance on others undertaking development obligations.   

The central issue was the meaning of “practical completion” of a project in circumstances where this term was not defined in the contracts which were in issue. This is often the case, for example in the JCT standard forms of building contract.

The case concerned two blocks of student accommodation in Plymouth which were to be designed and constructed in accordance with the relevant terms of an agreement for lease, which provided for Mears to take a 21 year lease of the project within five days of its practical completion. However, if practical completion had not been achieved by a long-stop date of 11 September 2018, then Mears could terminate the agreement for the lease and effectively walk away.

The issue concerned whether practical completion had been achieved at the point when the employer’s agent proposed to issue a certificate of practical completion, just before the long-stop date was to elapse. Mears objected to the issue of such a certificate on the basis that a significant proportion of the rooms were more than 3% smaller than the dimensions shown on the planning drawings. They maintained that this was in breach of a specific contractual requirement. 

Mears requested the court to give declarations on five issues of contractual interpretation. In the upshot, only one of the five declarations was given, to the effect that the planning drawings (and not the more developed drawings which were in circulation at the time the agreement for lease was concluded) were the ‘benchmark’ against which any deviations had to be measured. By this test, the court granted a declaration that around 50 of the rooms had been constructed too small in breach of the agreement for lease.

However, the court refused to grant any of the other declarations requested by Mears, including that the failure to construct one or more of the rooms in the property more than 3% smaller than the room sizes specified in the planning drawings was a material defect in the works which precluded practical completion.

The court quoted the widely accepted analysis in Keating on Construction Contracts of the meaning of practical completion based on consideration of the previous case-law, and concluded that practical completion of a building has been achieved where to all intents and purposes the building is complete. The court made it clear on this basis that the intent and purposes of the building is key, and that this is always a highly fact sensitive question which will be a matter for the trial judge in each individual case.

Practical drafting tips arising from the case

This judgment confirms that you should not rely on the discretion of the contract administrator or the courts to rule on whether it is necessary for the works to comply with specific requirements in order to qualify for a certificate of practical completion. 

Whether as landlord, developer, or tenant, if you have critical requirements in relation to such matters as net lettable area or the size of individual rooms, it is important that the contracts concerned make absolutely clear that the achievement of these requirements is a pre-condition of practical completion being certified. Only a bespoke contractual definition of practical completion can provide sufficient certainty in this way.  

In order to avoid contractual inconsistencies and gaps, it is also important to ensure that all contracts relating to the same project (including those dealing with property aspects, construction, professional services and financing) define practical completion in identical terms for all practical purposes.

Construction

Goodman Derrick has a strong cross-departmental Construction Group that provides contentious and non-contentious advice to property owners, developers, contractors and consultants, the group:

  • provides a comprehensive construction law service, from project beginning to end
  • draws on its knowledge of the construction industry, built up over many years
  • works extensively in the UK and internationally
  • takes pride in its ability to offer practical and commercially sound solutions

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This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.