Whilst the NEC and PPC2000 contracts define completion, the only JCT contract which does so is the Major Project Form which simply lists a number of requirements to be satisfied before practical completion (PC) can be certified.
Given that the vast majority of construction projects are procured under one of the other forms of JCT contract, determining whether PC has been achieved relies on a consideration of caselaw which has established that:
- PC means completion of all the Works required under the building contract
- Works can be practically complete if there are latent defects (being latent they would not be known about at the time PC is certified!)
- a PC Certificate should not be issued if there are patent (i.e. known) defects
- a certifier has some discretion to certify PC if there are very minor items of work incomplete, providing they do not interfere with the beneficial use of the Works
However, the Judge in Mears v Costplan Services appears to have added some additional considerations.
Facts
Mears entered into an Agreement for Lease to become the tenant of student accommodation blocks. Costplan was the Employer’s Agent under the Landlord’s building contract and so would be the party certifying PC.
A dispute arose as to whether the buildings had been constructed in accordance with the Agreement for Lease, and Mears obtained a temporary injunction preventing Costplan from certifying PC.
At the trial, Mears sought various declarations which would prevent Costplan from certifying PC where there are known material and substantial defects which Mears said would entitle it to terminate the Agreement for Lease.
Mears alleged that at least one room was more than 3% smaller than the agreed specification – which was a “material” breach of the Agreement for Lease.
Judgment
The Judge agreed that there had been a material breach of the Agreement for Lease, but this did not prevent PC from being achieved.
He stated that not every breach, even if “material”, would be serious enough to give rise to a right of termination:
“That result seems to me to be so commercially absurd that it cannot be right.”
The Judge also observed that:
- whether PC has been achieved may depend not only on whether the Works have been completed but also on the quality of their execution
- insignificant non-conformity with the specification of the Works may not prevent PC being achieved, even if the “defect” is not capable of being remedied
- the “intent and purpose” of the Works may be relevant (consider the different requirements for a secure mental health unit compared with an industrial warehouse).
The question of whether a defect prevented PC was fact-sensitive and depended on the circumstances of the case.
Comment
The judgment appears to depart from previously established principles and suggests that PC can still be certified where (a) there are patent defects (which may not be remediable), and (b) outstanding works may be more than de minimis.
It is likely that the issues in this case will be subject to further legal argument (and maybe even an appeal). In the meantime, if a purchaser or tenant considers that certain elements of the Works specification are so important that a failure to achieve them should prevent PC, then express terms to that effect should be included.
