A more than trifling matter: Court of Appeal considers the meaning of practical completion

Practical completion is easier to recognise than define. It is perhaps for this reason that there is no hard and fast legal definition, unless of course the parties choose to amend their contract to specifically define it. In the recent case of Mears Ltd v Costplan Services (South East) Ltd and others, the Court of Appeal considered the meaning of practical completion on appeal from the TCC's first instance decision in December 2018.

THE FACTS

The tenant, Mears, entered into an agreement for lease (AFL) with the landlord, PNSL, and the developer and contractor, Pickstock, by which it agreed to take a 21 year lease of two blocks of student flats in Plymouth following completion. The annual rent was £1.6m. The building contract required Pickstock to design, carry out and complete the works in conformity with the AFL.

The AFL provided that:

if a certificate of practical completion had not been issued by the longstop date of 11 September 2018, Mears or PNSL could terminate the AFL; the issue of a certificate of practical completion was to be in the "sole professional discretion" of the employer's agent; and the rooms were to be built to a specified size contained on the contract drawings and that if they were more than 3% smaller than the specified size, as built, this was 'material'. The words were originally scheduled to be complete by August 2017. In the event, completion of the works was delayed by over one year. During the course of 2018, Mears alleged that some of the rooms in the flats were more than 3% smaller than specified. However, by that time, the rooms had been built and the long stop date was fast approaching. Notwithstanding Mears' complaints, the employer's agent, Costplan, indicated that it considered the works were practically complete and it therefore intended to issue a certificate of practical completion.

AT FIRST INSTANCE

Mears sued Costplan, PNSL and Pickstock and obtained an interlocutory injunction restraining Costplan from issuing the certificate until after the trial. Mears then sought a declaration that the AFL, properly construed, meant that any reduction in room size exceeding 3% was a material breach of contract, which prevented certification of practical completion and that, consequently, it was allowed to terminate the AFL and "walk away".

PNSL disagreed and said that the effect of Mears' case was that it would leave PNSL with completed buildings, no tenant and lost rental income of more than £33m simply...