What is practical completion?
Posted: Friday 9 July 2010
There has been a growing number of cases over the past year that have been concerned with the issue of practical completion (“PC”). The trend of these disputes appear to be more about parties trying to escape consequences of PC rather than seeking confirmation as to whether the building in question is actually complete.
PC is of huge significance - its occurrence fundamentally shifts the balance of rights that exist between the parties to the Building Contract and also has a direct effect on third parties like tenants and purchasers. There is a school of thought that suggests that parties are using the scope provided by PC sign-off not to complete deals or to delay them to get better deals on third party agreements. Delaying can arguably put developers in a stronger position if a tenant seeks to pull out of an agreement. If the developer does not have an occupier, stalling on PC can delay liability for empty property rates. A developer is likely to consider that it is not worthwhile to take on the cost of maintenance, security and insurance of a property when there is a contractor in a position to do this at no cost. Overall, the apparent trend is that developers are scrutinising contract terms before taking possession of their properties.
By no means is this the state of play across the board. Many developers will quite happily “play ball” with their contractors and have PC signed off without too many questions. However, in such a period of continuing economic uncertainty, it is hardly surprising that the issue of PC is approached with some nervousness and hesitancy. Developers and contractors are becoming very aware of the PC process and over time this will ultimately be reflected during negotiations of contracts.
So why is there so much scope for manouvre? The definiton of PC is not fixed and this can lead to uncertainty. Most standard form building contracts simply refer to a certificate of PC being issued when PC of the works is achieved, without providing a more robust definition. You can see how arguments can begin.
While the fixing of a definition of PC within a contract seems a solution, this can be riddled with complexities. The starting point in successful negotiation will be to ensure that the developer and the contractor are on the “same page” with their view on what will constitute PC. There is a clear danger that the definition could become bogged down in specifics and while this isn’t always a bad thing, increasing the number of completion criteria and making them more specific and detailed will become time consuming and arguably contentious. Debating as to whether missing screws in plug sockets should prohibit PC sign off is perhaps taking things a bit too far – but it could happen.
In the absence of a clear definition in contract, it is against those responsible for PC sign off that the contractor has to argue, and he is up against nothing but their interpretation of what may be very ambigous wording indeed.
Elaine Sims, Solicitor
