Whatever possessed you?: Early partial possession

Do you need to get a tenant in early so they can commence fitting out before the project as a whole has reached practical completion? The question may seem academic given the dearth of office and retail tenants just now, but when a tenant does appear on the horizon, a client will want to give them as many inducements as possible to take the space, and early access for fitting out tends to be high on the tenant’s shopping-list.

But can a client deliver it? The professional team will always tell him that they can rely on the provisions for “partial possession” and “artists and tradesmen”. But can a client rely on these provisions? Does the contractor need to barricade access to the showhome – as actually happened in a recent case – to prevent such access, or does it have a contractual right to refuse access without needing to resort to such tactics?

The first misconception about the partial possession provisions in JCT forms is that they entitle the employer to practical completion of any part of the works by any particular date or time. They do not. The contractor is entitled to proceed at whatever speed it chooses and by whatever sequence it prefers provided it achieves practical completion by the completion date. There is no guarantee that the part the tenant wants will be completed by any particular date.

The contractor is not obliged to give the employer possession of any part. The employer’s right is subject to the consent of the contractor, which it can withhold if, for example, it believes that it would prevent it achieving practical completion, cost more money, and so on. And the more a client wants possession, the more likely it is the contractor can exploit this requirement.

Another misconception: a client can take possession of part of the building before practical completion. Indeed it can take possession in whatever state it likes but the part is then deemed to have achieved practical completion whatever state it is in. The client cannot complain afterwards that pipework was not properly connected, the number of snags was excessive, and so on. As a corollary, the retention must be released and the defects liability period commences. This can result in many different defects periods applying to a series of different parts of a project if, for example, shop units are taken sequentially.

Liquidated damages reduce proportionally following a partial possession. Again, the result of a series of partial possessions can be that the liquidated damages are reduced to such a small amount as to offer little incentive for the contractor to complete the balance of the works.

Does the contractor need to barricade a showhome – as actually happened in a recent case – to prevent a tenant moving in?

And remember that the part that is possessed is at the client’s risk after partial possession, so if it is damaged, it is the client’s insurance policy that must come into play.

Assuming that the client surmounts these hurdles, manages to secure the contractor’s consent, agrees access routes with the contractor so that the tenant’s fit-out team can actually get to the agreed part, the client faces a whole new risk profile on its project. The tenant’s contractors are “employer’s persons” under JCT contracts, so if the contractor can argue that the tenant’s contractors have impeded its progress or damaged any other part of the works, it is entitled to an extension of time and can make a loss and/or expense claim.

Given that access for fitting out is normally required towards the tail-end of projects, this can provide just the excuse a contractor needs to mask any delays for which it is responsible and muddy the water sufficiently to prevent claims for delay sticking – or even to mount a claim for additional payment.

It is true that employers’ advisers often try to delete the requirement for the contractor’s consent or by try to oblige the contractor to give access to a tenant’s fit-out team without implementing the partial possession provisions. But close scrutiny of many of these amendments show that they are effective only in overcoming some of the difficulties outlined above: they may ensure that the contractor’s consent is not required but that does not mean that a tenant’s fit-out team are not “employer’s persons”. No formal partial possession procedures may have been implemented but if, in truth, the site or large parts of it are barred to the contractor, how can it be held liable for liquidated damages or health and safety incidents when it is not in control of what is going on?

So something that the industry assumes is simple is anything but.