What is practical completion (and why does it matter)?

This article provides a simple explanation of “practical completion”, focussing on construction rather than engineering projects, and the JCT suite of contracts in particular.

Why does practical completion matter?

Practical completion (“PC”) is critical in any construction project. Once PC has been certified:

• the employer (or their tenant) can take occupation
• part (usually half) of any retention is released
• insurance obligations may change
• time is frozen for the purposes of assessing delay

So how do the parties determine when PC has been achieved?

JCT contracts don’t actually contain a definition of “Practical Completion” although many people use amendments to the contract to add a definition. 

So if your building contract doesn’t contain a helpful definition, what standard applies?

One of the key cases on this point is Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC), where Akenhead J summarised the common law position as follows:

1. “Practical completion means completion for all practical purposes, and what that completion entails must depend upon the nature, scope and contractual definitions of the Works, as they may have developed by way of variation or architect’s instructions.
2. De minimis snagging should not be a bar to practical completion unless there is so much of it that the building in question cannot be used for its intended purposes.”

He also noted that practical completion requirements can be relaxed by agreement between the parties, i.e., if the employer is keen to gain occupation and agrees that some non-trivial element of the works can be carried out later.

In Mears Ltd v Costplan Services (South East) Ltd and others [2018] EWHC 3363 (TCC), Waksman J noted that:

• practical completion may depend not only on whether work has been done, but also on its quality;
• insignificant non-conformity need not bar practical completion; and
• the “intent and purpose” of a building may be relevant.

The “intent and purpose” point is critical. Often when parties amend a JCT contract to add a definition of “Practical Completion” they will use wording such as “fit for beneficial use and occupation as a [gym][hotel][GP surgery] etc.”.

However, consider this example:

A franchisee pays for works in order that they may operate a franchise of a well-known hotel chain. The contractor completes the fit-out works are such that the premises are “fit for beneficial use and occupation as a hotel” and meeting the building regulations requirements.  However, the franchise agreement requires that acoustic attenuation between the rooms must be better than the minimum building regs requirements. The contractor’s works only meet the regulatory minimum, rather than the higher standard in the franchise specification contained in the employer’s requirements. The franchisor tells the franchisee that they are not permitted to open until the acoustic standards meet the standards for their brand. The franchisor therefore cannot take trade and so argues that PC has not occurred. The contractor argues that the building is fit for beneficial use and occupation as a hotel, so PC must be certified. 

If the contract has been properly drafted, the employer/client will be protected, otherwise it may be left up to the courts to decide. 

How to avoid an argument over whether or not PC has been achieved

Whilst that general wording may in many circumstances be adequate, consider these steps:

• Ensure that PC is defined in your contract with reference to the specific standards required, then these must be set out clearly (usually in the Employer’s Requirements) and referred to in the contract conditions. 
• Consider making certain requirements an express condition precedent to PC so that there can be no doubt.