In the recent case of Mears Limited v Costplan Services (South East) Limited & Othrs, the English courts considered the meaning of the phrase “practical completion”.
The nature of the dispute
Mears Ltd (the tenant) entered into an agreement for lease [AfL] with a developer of two blocks of student accommodation. The AfL required the developer to procure construction of the blocks and, following practical completion, the tenant would enter into a lease for the accommodation. As the blocks neared completion, a dispute arose about whether they had been constructed in accordance with the AfL (a number of rooms had been built 3% smaller than set out in the planning permission), with the tenant alleging several breaches and obtaining an injunction preventing the issue of the practical completion certificate under the building contract.
The court’s decision
The court granted a declaration that the blocks were constructed in breach of requirements in the AfL, but refused to accept that these breaches meant that practical completion could not be validly certified. The judgment includes some interesting observations about the meaning of the phrase “practical completion” and the circumstances in which it may, and may not, be certified.
The meaning of practical completion
In the contract in question, the term ‘practical completion’ was not defined and the court adopted a definition set out in Keating on Construction Contract (9th edition) that:
- Works can be practically complete notwithstanding that there are latent defects;
- A Practical Completion Certificate may not be given if there are patent defects;
- Practical Completion means the completion of all the construction work that has to be done; and
- The certifier is given a discretion…to certify Practical Completion where there are very minor items of work left incomplete on “de minimis” principles.
The court considered that for works to be ‘practically complete’, they do not need to conform with the contractual requirements in every way. Provided that any non-conformity is ‘insignificant’, the certifier must exercise its professional judgment in deciding whether or not to certify practical completion. The intent and purpose of a building is a key consideration.
When a building is intended to house people, whether or not it is fit for occupation is a key question and the answer will depend on the facts. But, the court also acknowledged that even where a building that was intended to house people was fit for occupation, it might still not be practically complete.
The breach in this case was not capable of being remedied without starting over and the Court considered how to deal with breach of a building contract that is incapable of being remedied (without starting again). To certify practical completion is a let off for the contractor in default. But, can an irremediable breach be adequately the compensated by the contractor paying damages to the employer? In the court’s view, whilst an irremediable breach can prevent practical completion being certified, it will not always do so; it will depend on the facts.
Whether or not works are practically complete depends heavily on the facts, including the purpose of the works and the nature of any breach(es) by the contractor. It is common practice to specify work that must be completed for the purposes of practical completion. However, difficulties can arise if the parties try to create an exhaustive list of circumstances when ‘practical completion’ will or will not be certified.