Is A Breach Of Contract Material? Will Defects Or Breaches Of Contract Prevent Practical Completion?

The Court of Appeal recently provided - for the first time in decades - a useful summary on practical completion in the context of construction contracts.

In Mears Limited v Costplan Services (South East) Limited & Ors the Court of Appeal first had to determine whether a clause in an agreement meant that a breach of it was a material breach and then decide whether practical completion could be certified when there were known material or substantial breaches of contract.

Background

Mears is a provider of student accommodation. Mears entered into an agreement for lease ("AFL") with Plymouth (Notte Street) Limited ("PNSL") to lease student accommodation. PNSL engaged a builder to construct the accommodation. If practical completion was not achieved by the relevant date, either party could terminate the AFL. Ultimately, Mears sought to be discharged from its obligations under the AFL.

The AFL provided that:

"6.2 The Landlord shall not make any variations to the Landlord's Works or Building Documents which:

6.2.1 materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be deemed material), layout or appearance of the Property; or..."

Prior to completion of construction, it became apparent that a number of the rooms in the student accommodation were more than 3% smaller than specified. Mears took issue with this and commenced proceedings seeking declarations regarding the true construction of clause 6.2.1 of the AFL and also in respect of the certification of practical completion.

"At first instance, the TCC refused to grant declarations sought by Mears relating to whether the proper construction of clause 6.2.1 meant that a reduction of the size of an area by more than 3% was a material breach and that this meant practical completion could be prevented and the building contract terminated. Mears appealed."

At first instance, the TCC refused to grant declarations sought by Mears relating to whether the proper construction of clause 6.2.1 meant that a reduction of the size of an area by more than 3% was a material breach and that this meant practical completion could be prevented and the building contract terminated. Mears appealed.

Appeal

The Court of Appeal determined that parties could agree that a breach of a particular clause of a contract amounted to a material or a substantial breach of contract. However, the parties did not do that in this case. What the parties...