TCC adopts more flexible approach to determining practical completion

A recent TCC decision has set out a flexible approach to determining when a construction project can be considered to have reached practical completion. The court’s decision means that material or substantial defects need not necessarily prevent practical completion depending on the circumstances and the intended purpose of the works. The decision has been appealed and appears to be at odds with other cases where a strict “de minimis” threshold has been applied.

Mears Ltd v Costplan Services (South East) Ltd

Mears entered into an agreement for lease with Plymouth (Notte Street) Limited (the “Developer”) to take a 21 year lease of two blocks of student accommodation to be constructed in Plymouth. The Developer engaged a contractor to build the blocks under a JCT Design and Build contract and appointed Costplan as its Employer’s Agent.

The building of the blocks was delayed by almost a year and Mears alleged there were a number of defects in the works. Most notably, Mears claimed that around 50 of the student rooms constructed had been built more than 3% smaller than specified in the agreement for lease.

Mears therefore claimed that practical completion of the works could not be certified by Costplan under the agreement for lease. The reaching of practical completion was significant because:

1. if it did not occur by a longstop date, Mears had the right to terminate the agreement for lease; and
2. once practical completion occurred, the Developer was to be released from liability to Mears in certain respects as regards the works.

Mears sought declarations from the court that the reduced size of the rooms amounted to a “material and substantial” defect in the works and that practical completion could not therefore be certified by Costplan.

A flexible approach

The court found in Mears’ favour that the rooms in question had been built more than 3% smaller than specified. However, the court felt unable to determine whether such a breach of the agreement for lease was “material and substantial” without further evidence. In considering whether practical completion could be certified, the court nevertheless proceeded on the assumption that the breach was material and substantial.

The court noted that the concept of practical completion remained undefined in the building contract and agreement for lease - although the agreement for lease noted that practical completion would only be granted if the works were “complete in every respect for occupation including any foot paths, car parking spaces … External works and fences ..”. This reference was not thought to take matters much further and the court found there to be no indication that practical completion “should not mean what practical completion usually means in the context of building contracts”.

The court considered the usual definition and concluded that the concept of practical completion was highly fact dependent. It was not possible to conclude that merely because a defect was material or substantial, practical completion would necessarily be prevented. The court emphasised the intent and purpose of the works. Accordingly, “any (other than “de minimis”) breach of a building contract by the contractor, of whatever kind, could potentially stop practical completion depending on the nature and extent of it and the intended purpose of the building”.

The mere fact that a defect was material, or something other than “de minimis”, was not sufficient. The declarations sought by Mears could not therefore be granted in the absence of a detailed evidence considering the impact of the reduction in room sizes.

Conclusions and implications

This is a significant decision as to the meaning of practical completion in building contracts where that term is left undefined (such as the JCT). The flexible approach adopted by the court means that even significant defects might not prevent practical completion depending on the circumstances and the intended purpose of the works. This appears to be odds with other cases which have allowed only “de minimis” or trivial defects to persist beyond practical completion. A recent summary of that approach is found in Hall v Van Der Heiden as follows:

“I remind myself that practical completion means the completion of all the construction work that has to be done … although the architect may have a discretion to certify practical completion where there are very minor items of work left incomplete on 'de minimis' principles … Moreover, although a practical completion certificate can be issued where there are latent defects, the authorities noted above make plain that such a certificate cannot be issued in circumstances where there are patent defects.”

Mears has lodged an appeal against the present decision and it is hoped that the Court of Appeal will provide guidance as to which of these competing approaches is to be preferred.

References:

Mears v Costplan Services (South East) Limited [2018] EWHC 3363 (TCC).

Hall & Anor v Van Der Heiden (No 2) [2010] EWHC 586 (TCC).