Practical Compleation

What does ‘practical completion’ mean? Court of Appeal provides guidance

Posted in Real Estate.

A ruling in the Court of Appeal provided guidance on the meaning of ‘practical completion’ – the first time the court has looked at this question for 50 years: Mears Ltd v (1) Costplan Services (South East) Ltd (2) Plymouth (Notte Street) Ltd (3) J.R. Pickstock Ltd [2019] EWCA Civ 502.

This case will be of particular interest to those in the construction industry as the judgment provides a helpful explanation of what practical completion means.

Plymouth (Notte Street) Ltd (PNSL) engaged a developer and contractor to build student accommodation. Under the agreement for lease PNSL also contracted with Mears a company who managed student accommodation and entered into a contract to take a 21- year lease of the block. The agreement prohibited the contractor from making any building works which would ‘” materially” affect the size of the rooms. The agreement stipulated a reduction in the size of more than 3% would be deemed “material”. Another clause provided that if the certificate of practical completion was not issued by a certain date, Mears was entitled to terminate the lease agreement. Another clause provided that if the certificate of practical completion was not issued by a certain date, Mears was entitled to
terminate the lease agreement.

Eventually, 56 of the 348 rooms were found to be 3% smaller than the contract drawings. As a result, Mears claimed that was material and substantial breach of the agreement for lease meaning that the certificate of practical completion could not be issued, and it was entitled to terminate the agreement. Waksman J refused to grant the declaration as matter of construction of the Agreement.

The court of Appeal said that while the reduction in size meant there had been a breach of the Contract this did not mean Mears was able to discharge from its obligation under the agreement, more importantly it did not prevent practical completion. Any defects must be “trifling” if practical completion is to be certificated. Significant defects cannot be discounted on the basis they do not prevent the works from being used for their intended purpose.

References:

Mears v Costplan Services (South East) Limited [2018] EWHC 3363 (TCC).
Mears Ltd v Costplan Services (South East) Ltd [2019] EWCA Civ 502.