Practical completion: you'll know it when you see it

Practical completion is one of those terms with which everyone is familiar – but for which there is no clear legal definition.  This point became the focus of attention in the case of Mears Limited v Costplan Services (South East) Ltd[1], a case which went to the Court of Appeal. Mears is a provider of managed student accommodation.

Circular definition of practical completion

The building contract in question was a JCT Design and Build Contract 2011 with bespoke amendments.  It defined the certificate of practical completion 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”.  That is a somewhat circular definition, as it does not tell the Agent how to work out when PC has been achieved so that the certificate can be issued. The dispute also involved an agreement for lease of the property.

The project concerned the design and build of student accommodation. The project fell into delay. A notice of late completion was issued, and Mears served a defects notice stating that 40 rooms had been constructed more than 3% smaller than required. Subsequently Costplan served notice that they intended to attend site to conduct a pre-completion inspection, “…with a view to issuing the certificate of practical completion.” Mears subsequently issued two further defects notices.

Can defects or breaches prevent issue of certificate of practical completion?

Mears made an application to court for an injunction to prevent Costplan from issuing the certificate of practical completion and seeking a number of declarations. The trial judge found that some of the rooms had indeed been constructed to the wrong size (too small) but refused to grant the injunction preventing issue of the certificate of PC.

Mears appealed to the Court of Appeal on that and a number of other issues.

The issue with which we are concerned for this article is whether the Employer’s Agent could certify PC where there are “known material or substantial defects”, or where there are “…material and substantial subsisting breaches…" of the agreement for lease relating to the performance of the works.

Practical completion is easier to recognise than define

The Court of Appeal reviewed the case law in relation to practical completion, none of which it found to be definitive/conclusive. Indeed the court recommended caution in relation to the case law.

Having reviewed the case law the court gave the following summary of the law on practical completion:

a)     “Practical completion is easier to recognise than define …. There are no hard and fast rules…

b)     The existence of latent defects cannot prevent practical completion... 

c)     In relation to patent defects, the cases show that there is no difference between an item of work that has yet to be completed … and an item of defective work which requires to be remedied.  Snagging lists can and will usually identify both types of items without distinction.”

Practical completion not necessarily hindered by irremediable breach or defect

In addition, even if a defect or breach is “irremediable”, that does not inevitably mean that practical completion has not been achieved.

Reference was also made, with seeming approval, to the leading construction textbook, Keating, that states that practical completion is “easier to recognise than to define.”

As a result of those findings, the Court of Appeal rejected the declarations that were sought on appeal, and upheld the original Judge’s decision to refuse to grant the declarations that had been sought in relation to PC. The court had therefore been entitled to refuse to grant an injunction to prevent practical completion being certified.

The court also made clear that where a property is being built for habitation, the mere fact that it is habitable does not mean that it is practically complete.  

Although this case does provide some clarification in relation to practical completion, it nevertheless emphasises the fact that there remains no clear legal definition of that concept. As the judgement made clear “…in the absence of any express contractual definition or control, practical completion is, at least in the first instance, a question for the certifier”. The major standard form contracts such as JCT do not provide such a definition, but it remains possible to include a bespoke definition.