If you take a lease of a ‘work-in-progress’ with no completion date, you may rely on ‘practical completion’. But when a builder says that works are ‘practically complete’ and you disagree, it could end up in court…
Mears Limited entered into an Agreement for Lease with Cost Plan Services (Southeast) Limited to take a 21-year lease of two blocks of student accommodation to be constructed in Plymouth, and therefore acquired ‘off-plan’.
The building of the blocks over ran by about one year. In due course, the developer served a notice of practical completion seeking to force Mears to complete.
Mears alleged that there were defects in the works, the principal one being that a number of the student rooms constructed were 3% smaller than specified.
Mears sought a declaration in the Technology and Construction Court (TCC) that practical completion could not be achieved whilst there were known defects which were “material or substantial”. The TCC refused the declaration and said that substantial defects may or may not prevent practical completion and that it “depends on the nature and extent of (the defects) and the intended purpose of the building”.
Mears was unhappy with this decision and appealed to the Court of Appeal. The Court of Appeal comprehensively reviewed the authorities and in fact adopted a much more restricted approach than the TCC.The Court of Appeal said that the essential question was, “whether a defect was de minimis or trifling”.A trifling defect would not prevent practical completion. If it was more than trifling, practical completion could not be certified.
The Court of Appeal in fact held that the declaration Mears had sought in the TCC was relatively uncontroversial. In other words, practical completion cannot be achieved while there are known defects which are material or substantial.
The Court of Appeal set down guidance for the future which stated that patent defects will be sufficient to prevent practical completion except if they are trifling. The ability to use the premises as intended may be a factor in considering whether a patent defect is trifling in nature. The court also pointed out that even if the building can be used for its proposed purposes, it does not necessarily mean that the works are practically complete. Please read our Legal Hub article “Practical Completion in Construction & Agreements for Lease” for the full list of guidance set down by the Court of Appeal.
This is an important decision for construction and property law.
The Court of Appeal has stated that trifling defects will not prevent practical completion. How one defines a trifling defect will now become the major question to determine. No guidance was given as to whether in this particular case the fact that the rooms built for the students were 3% smaller was trifling or not.
What the decision does tell us is that a significant defect cannot be discounted on the basis that it does not prevent the building from being used for the intended purpose. This was of course the case with regard to the size of the student rooms. They could still be used as student rooms, but was the fact that they were 3% smaller a trifling matter or was it significant? If it was judged significant then practical completion would not have occurred.
If you are considering entering an Agreement for Lease relating to any ‘off plan’ property, it is vital to consider the precise wording at the outset. Any specific requirements as to the form or service of the Practical Completion Certificate must be strictly adhered to.
If however, you are already further down the line, our specialist Commercial Property Litigation Team are able to advise on any dispute relating to your Agreement for Lease and would be happy to discuss your situation and advise on further action.
This article was written by Stephen Eccles, Partner in the Commercial Property Litigation Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2019.