In the recent case of Mears v Costplan  EWCA Civ 502, the Court of Appeal provided significant clarity as to how courts should interpret the widely used but seldom defined term, “practical completion” in the context of construction contracts. In essence, it was held that practical completion should only be prevented by patent defects (i.e. those that can be discovered by reasonable inspection) where such defects are considered “more than trifling.”
The core issue in dispute concerned whether practical completion of two blocks of student accommodation had been achieved. Mears Limited (“Mears” or the “Employer”) had engaged Plymouth (Notte Street) Limited (the “Developer”) to design and build the two blocks. The parties had also entered into an Agreement for Lease (“AFL”) which required Mears to take a 21 year lease of the property following completion.
The AFL prohibited the Developer from varying the works which “materially” affected the size of the student rooms. Any reduction in size which was more than 3% smaller than the AFL specifications was to be considered material. Following lengthy delays to the works, the Employer claimed that 56 of the student rooms had been constructed with material deviations from the required specifications. As such, the Employer sought declarations in the Technology and Construction Court (“TCC”) preventing the certification of practical completion, the practical effect of which was to allow Mears to terminate the AFL and discharge its obligations under the agreement. The TCC refused to grant such declarations resulting in Mears’ appeal.
The Court of Appeal
On appeal, the Court held that the TCC had correctly declined the declarations as, on a proper construction of the AFL and in the absence of any express contractual definition, the question of practical completion was to be decided by the certifier. Mears could not, therefore, terminate the AFL nor discharge its obligations.
Further, the Court held that where patent defects exist and are “more than trifling” or de minimis, such defects shall be sufficient to prevent practical completion. Whether a patent defect is trifling is a matter of fact and degree to be assessed against “the purpose of allowing the employers to take possession of the works and to use them as intended” (per Jarvis v Westminster  3 All ER 1025). Applying this approach in the present case, the Court held that, while some rooms were built 3% smaller than specified, this did not sufficiently detract from their intended purpose of providing student accommodation. As such, the defect could be said to be merely trifling.
The Court also provided the following useful guidance:
- Practical completion is “easier to recognise than define” and there are no “hard and fast” applicable rules.
- The existence of latent defects cannot prevent practical completion as, self-evidently, their existence is unknown at the time when practical completion certification takes place.
- In respect of patent defects, there is no difference between an item of work that is yet to be completed (i.e. an outstanding item) and an item of defective work which requires remedying.
- Where patent defects exist and are more than “trifling” in nature, such defects will be sufficient to prevent practical completion.
- The ability to use the works as intended may be considered a relevant factor when deciding whether a patent defect is “trifling” in nature. However, such ability alone will not necessarily mean that the works are practically complete.
- The mere fact that a defect is irremediable does not mean that the works are not practically complete.
In addition to providing some practical clarity as to the meaning of ‘practical completion’, this case demonstrates the importance of unambiguous and clear drafting.
For more judicial consideration on ‘Practical Completion’, please see our article entitled Take Care When Drafting Definitions of “Practical Completion