Ruling on Practical Completion of Construction Contracts

The Court of Appeal has handed down a decision in which, for the first time in 50 years, it considered the issue of ‘practical completion’ in construction contracts (Mears v Costplan*).

In this case, a prospective tenant, Mears, entered into an agreement for a lease for two blocks of student flats on completion of the build.  The agreement contained a clause stating that if a certificate of practical completion had not been issued on the blocks by 18 September 2018, Mears could give notice of termination.  The lease prohibited the reduction of room sizes by more than 3% from those shown on the contract drawings.

Breach of agreement
In August 2018, Mears complained that the room sizes of the buildings were more than 3% smaller than as shown in the contract drawings, in breach of the terms of the agreement. Despite Mears’ complaints, Costplan indicated that it intended to issue a certificate of practical completion.

Mears sued and obtained an interlocutory injunction restraining Costplan from issuing a certificate of practical completion until trial. In addition Mears sought declarations including that the reduction in size was a material breach of the agreement, which would prevent practical completion.

Breach of contract vs practical completion
At first instance, although the judge found that the rooms had been built 3% smaller but refused to grant Mears the declarations sought.  On appeal, the judge agreed with the decision at first instance.  The appeal court judge made a distinction between a breach of the contract (that the rooms were more than 3% smaller) and whether the building could be certified as practically complete. Whether or not a breach of contract would preclude practical completion was a matter of fact and degree in each case.  The judge stated that it would be commercially unworkable if every departure from contract drawings resulted in the prevention of practical completion regardless of the nature and extent of departure.

Principles of practical completion
The judge set out a number of pragmatic principles to help identify that a building has been practically completed, including when:

• the building can be used as intended; and
• all items of work have been completed and all defective work has been remedied (other than trifling defects).

It is important to note that the judge found that the fact that a defect is irremediable does not preclude practical completion.  The judgement contains a strong streak of pragmatism throughout, the judge noting that practical completion is easier to identify than to define.  For example, just because a build is capable of being inhabited does not necessarily mean that it is practically complete regardless of the nature and extent of remaining work.

This decision provides welcome assistance to developers in providing certainty that not every tiny departure from plans will be enough to preclude completion certification.  However, the decision will also provide relief to prospective tenants showing that defects of sufficient severity will preclude practical completion despite the fact that the building is technically habitable.

*Mears Limited v Costplan Services (South East) Limited & Ors [2019] EWCA Civ 502.

For more information please contact Elizabeth Deyong (email: e.deyong@barrellison.co.uk) (telephone: 01223 417 267).

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.