When Does The Pay Less Notice Regime Apply?

Laura Lintott of Dentons UK and Middle East LLP analyses the pay less notice regime in the wake of last year's Court of Appeal ruling on whether the Construction Act applies to final payment applications made after contract completion or termination.

Key points

A review of the decision in Adam Architecture Ltd The Court of Appeal has held that s 111 of the HGCRA 1996 applies to both interim applications and any final account or termination account An employer cannot resist a payment application without serving a pay less notice - even if the construction contract has been terminated The employer must pay the sum stated to be due and argue about it afterwards Late in 2017, the Court of Appeal (CA) was asked to decide whether s 111 of the Housing Grants, Construction and Regeneration Act 1996 (as amended in 2011) (Construction Act), applies to final payment applications made after completion or termination of the contract. Does an employer have to serve a pay less notice if it disagrees with the amount applied for by the contractor? In responding yes to this question, the CA's decision in Adam Architecture Ltd v Halsbury Homes Ltd [2017] EWCA Civ 1735 provides useful clarification on how to interpret s 111 of the Construction Act.

Before relaying the facts of the case, Lord Justice Jackson was careful to set out in full the payment terms covered by ss 109 to 111 of the Construction Act - both the old, 1996 version and the latest, 2011 version. (All sections here refer to the 2011 version of the Construction Act.)

Here is a reminder of the key requirements of s 111 for an employer to serve a pay less notice if it intends to pay less than the notified sum.

Section 111(1) provides:

'Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment.'

Section 111(3) states:

'The payer of a specified person may in accordance with this section give to the payee a notice of the payer's intention to pay less than the notified sum.'

What was the dispute in the Adam Architecture Ltd case?

Adam Architecture Ltd (Adam), a company of architects, was appointed under a professional services appointment by Halsbury Homes Ltd (Halsbury), a property developer, in connection with a residential development to construct 200 homes in Loddon, Norfolk.

Halsbury accepted Adam's fee proposal to carry out its work in four stages and Adams started work under the Conditions of Appointment for an Architect published by the Royal Institute of British Architects (RIBA) 2012 edition (RIBA Conditions). Their arrangement, however, quickly fell apart.

On 2 December 2015, Halsbury terminated Adam's appointment without...