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Court of Appeal judgment gives guidance on meaning of ‘practical completion’

Out-Law News | 13 May 2019 | 3:09 pm |

A Court of Appeal ruling clarifies the meaning of “practical completion”, a common source of dispute between construction contractors and employers.

The judgment said that practical competition is easier to recognise than define, and that latent defects or trifling patent defects do not prevent practical completion.

The case was brought by a student accommodation company, Mears, over the size of the rooms in a particular block. Mears had entered into an agreement to take a 21-year lease of the block, and the agreement prohibited the contractor’s employer from making any material variations affecting the size of the rooms.

According to the agreement, a reduction in size of more than 3% was deemed to be material. Another clause provided that if the certificate of practical completion was not issued by a certain date, Mears was entitled to terminate the lease agreement.

When the building was finished 56 of the 348 rooms were more than 3% smaller than anticipated. Mears claimed that this was a material and substantial breach of the agreement for lease, meaning that the certificate of practical completion could not be issued and it was entitled to terminate the agreement.

Both the High Court and the Court of Appeal disagreed. In its judgment the Court of Appeal said that while the reduction in room size meant there had been breaches of contract, this did not mean Mears was able to treat itself as discharged from its obligations under the lease agreement, and it did not prevent practical completion.

“Lord Justice Coulson's summary of the law of practical completion clarifies some previously divergent views in relation to patent defects and irremediable outstanding items,” said constructions disputes expert Frederic Gillion of Pinsent Masons, the law firm behind Out-Law.com.

“The judgment also provides more concrete guidance for engineers and project managers to help recognise when practical completion has taken place, and greater certainty to contractors, employers and other stakeholders,” Gillion said.

Gillion said the Court had clarified that for practical completion purposes there is no difference between an outstanding item of work and an item of defective work to be remedied. Whether or not an item is trifling was a matter of fact and degree, to be measured against the purpose of allowing the employers to take possession of the works and to use them as intended.

Additionally, an irremediable outstanding item of work does not necessarily prevent practical completion.

“Practical completion is important to contractors because it typically entails the end of liability for liquidated damages; the coming due of a portion of the retention monies; the commencement of the defects liability period; and the passing of risk of loss or damage to the works to the employer,” Gillion said.