Practically perfect in every way?

Although practical completion is a key stage in most construction projects, usually triggering the start of the rectification period, the release of retention and changes in insurance obligations, it is rare for the term practical completion to be defined within a contract.

Keating on Construction Contracts has rightly highlighted that “Practical completion is perhaps easier to recognise than to define”.

In the recent case of Mears Limited v Costplan Services (South East) Ltd and others [2018] in the Technology and Construction Court, Waksman J looked at various issues including the question of practical completion on which he provided some useful further commentary.

Background

The case concerned blocks of student accommodation that had been constructed by one of the defendants. The blocks were the subject of an agreement for lease (“AFL”) between another defendant and the claimant, Mears. The AFL provided that if practical completion had not occurred by a long stop date then Mears could terminate the AFL. 
A dispute arose as a number of the rooms were alleged to be smaller than they should have been. Mears argued this meant that practical completion could not be certified. As the longstop date had passed it was therefore in a position to terminate the AFL.

Mears sought various declarations from the court with a view to preventing practical completion from being certified. The judgment is largely fact specific due to the precise wording of the declarations that were sought. It primarily turned on a provision in the AFL about what constituted a variation materially affecting the size of the rooms.

The clause in question stated:

“6.2 the Landlord shall not make any variations to the Landlord’s Works or Building Documents which 
6.2.1 materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be deemed material), layout or appearance of the Property…”

It was not in dispute that it was impossible to correct the size of the rooms affected (without demolition and rebuild) and in that sense any deviations from the plans were now irremediable.

The judge found that even though there might be a material variation for the purposes of clause 6.2.1, it did not mean that, without more, the resulting breach was itself material or substantial. In his view, Mears was eliding the scale of the variation with the scale of the resultant breach. It did not follow that a breach of the clause would never have an impact on whether practical completion should be certified but it would all depend on the circumstances. 
The judge went on to give further useful guidance on practical completion.

Guidance on practical completion 

As a starting point the judge adopted the statement of principle from Keating on Construction Contracts (9th edition paragraph 20-120):

“(a) the Works can be practically complete notwithstanding that there are latent defects;
(b) a Certificate of Practical Completion may not be issued if there are patent defects. The Defects Liability period is provided in order to enable defects not apparent at the date of Practical Completion to be remedied;
(c) Practical Completion means the completion of all construction work that has to be done; and 
(d) however, the Architect is given a discretion…to certify Practical Completion where there are very minor items of work left incomplete on “de minimis” principles.”

To this the judge then added the following further observations. 

• Practical completion is not just about the extent of the work done but also about its quality. Incomplete work and work done badly can both be described as being defective. 
• “Works need not be in every respect in complete conformity with the contract in order to merit practical completion, provided that any non-conformity is insignificant, a matter which will usually be left to the professional judgment of the certifying entity”. 
• “There will be practical completion if to all intents and purposes the building is complete. So the intent and purpose of the building is key. When the building is intended to house people, that has led to an emphasis on it being fit for occupation by such people.”
• “There are in theory many different reasons why a particular building in a particular state can be said not to have been practically completed. And it is not appropriate or wise even to attempt an exhaustive list.”
• “…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 fact that a breach might be irremediable might prevent practical completion. However, that would not always be the case and whether an irremediable breach would prevent practical completion case will depend on the particular facts and circumstances.

Conclusions

The judge’s comments serve to highlight that the question of whether practical completion has been achieved on any particular project is going to be fact specific and will depend on the nature of the outstanding work or defects and the intended purpose of the building. As he said “context is everything.” However, the decision provides useful further points to think about for those certifying practical completion, particularly when faced with the issue of whether an irremediable breach will prevent practical completion.