Practical completion: Are we there yet?

Does anyone really know what “practical completion” means?

Most of the time in life we know when something is finished. A completed meal leads to a clean plate and a sporting event is over when the final whistle blows. So, why can’t we be sure when a building project is practically complete?

“Practical Completion does not mean that something is finished. There are defects to be reviewed and corrected, retentions to be released or reduced, and sometimes other sections of work yet to be carried out. Standard contracts often fail to define the term and its certification is usually in the hands of an architect, employer agent or engineer. Where process plant and heavy engineering projects are carried out, ingress for practical completion will usually be linked to the successful testing of equipment as to its functionality. Amendments to contracts often refer to the provision of operating manuals or warranties as a pre-condition to practical completion.

But perhaps this lack of clarity and element of subjectivity is unavoidable and works as long as all the parties involved have a common intent.

But perhaps this lack of clarity and element of subjectivity is unavoidable and works as long as all the parties involved have a common intent

For example, a company with a pre-let or an educational establishment wants practical completion to match the arrival and needs of the end user, but a developer with a speculative and unlet building will conversely be keen to avoid payments and insurance risk until some rental income appears on the immediate horizon.

It is important to consider the interface between the building contract and the various property specific agreements. In the recent case of Kingerlee Holdings Ltd vs Dunelm (Soft Furnishings) Ltd, a tenant lost its claim that rent was not due under a new lease when it disagreed with the issue of a practical completion certificate under the separate building contract and raised the failure of the landlord to give advance notice of inspection and an intention to issue a practical completion certificate under the building contract. Failure to give notice under the then lease agreement did not invalidate the practical completion certificate under the building contract. So a tenant may find itself with liabilities where it has no say as to the trigger for them.

In a recent case (Elmbid Ltd vs Burgess) a buyer of a barn converted into living accommodation who did not agree with the granting of practical completion by a supervising architect and refused to complete was found to be in repudiatory breach of contract and the seller could forfeit the deposit and claim damages. This illustrates the challenges of different interests and subjective assessments.

Whilst “practical completion” does not usually mean free from all defects, the element of discretion can produce surprising results for contracting parties, particularly those who have not read the contract terms carefully. The answer to “are we there yet” in the context of a building project is not always the expected one.

Laurence Cobb is head of the construction and engineering group at Taylor Wessing