Court of Appeal guidance on Practical Completion

The Court of Appeal has provided useful guidance on the meaning of Practical Completion in Mears v Costplan (2019).  We wrote about the first instance decision in this case in our previous article available here. The Court of Appeal took a narrower view than the Technology and Construction Court and emphasised that patent defects must be more than “trifling” to prevent practical completion and this is a matter of fact and degree measured against the purpose of allowing the employer to take possession and use the building as intended.

The facts

The second and third respondents, Pickstock (the contractor) and PNSL (the landlord) entered into a building contract based on JCT Design & Build 2011 in May 2016 to design and build two blocks of student accommodation in Plymouth.  Mears, a company providing managed student accommodation, entered into an agreement for lease with PNSL to take a long lease of the property following completion. 

Clause 6.2.1 of the agreement for lease prevented PNSL from making any variations to the building works which materially affected the size of the rooms.  A reduction in size of more than 3% was deemed to be material.  The agreement for lease defined practical completion by reference to the building contract as "A certificate issued by the Employer's Agent to the effect that practical completion of the Landlord's Works has been achieved in accordance with the Building Contract."  There was no definition of Practical Completion in the building contract. 

In August 2018, Mears sought (and was granted) an injunction preventing Costplan, the Employer’s Agent, from issuing the certificate of practical completion. 

Mears argued that any failure to meet the 3% tolerance was a material and substantial breach of the Agreement for Lease which (i) entitled it to terminate and (ii) prevented Costplan, from certifying practical completion.

At first instance, the judge rejected Mears’ arguments and held that a material variation for the purposes of clause 6.2.1 did not automatically mean a material and substantial breach and that whether practical completion could be certified depended on the facts.  Mears appealed the decision.  The Court of Appeal upheld the decision of the TCC and summarised the law on the meaning of practical completion.

Meaning of Practical Completion

The Court of Appeal summarised the law as follows:

• Practical completion is easier to recognise than define and there are no hard and fast rules.
• The existence of latent defects cannot prevent practical completion.
• The authorities show that in relation to patent defects there is no difference between an item of work that has yet to be completed (an outstanding item) and an item of defective work that needs to be remedied. Snagging lists identify both types often without distinction.
• Practical completion is a “state of affairs in which the works have been completed free from patent defects, other than ones to be ignored as trifling.”
• Whether an item is “trifling” is a matter of fact and degree to be measured against the purpose of allowing the employer to take possession and use the works as intended. However, this comes with the warning that this should not be elevated to a proposition that  “if, say, a house is capable of being inhabited, or a hotel opened for business, the works must be regarded as practically complete, regardless of the nature and extent of the items of work which remain to be completed/remedied.”
• The fact that a defect cannot be remedied does not mean that the works are not practically complete.

The court said in the absence of any contractual definition or control, whether practical completion has been achieved (i.e. whether the works are free from patent defects save any that are “trifling”) is in the first instance a matter for the certifier.  The court also emphasised that the fact that the property was habitable as student accommodation did not automatically mean that the property was practically complete. 

Comment

As the court itself recognised there are no hard and fast rules and whilst this is a helpful summary of the law, whether or not practical completion has been achieved will continue to be assessed on a case by case basis and as such be a potential area for disputes.