Practical completion of a development has huge commercial significance for the parties to a development agreement. The concept is easier to recognise, than to define, and its precise meaning will turn on the construction of the agreement in which it is used.
In the case of an agreement for lease, the issue of a certificate of practical completion usually starts time running for completion of the lease. In Kingerlee Holdings Ltd v Dunelm (Soft Furnishings) Ltd [2013] EWHC 47 (Ch), the tenant refused to accept that the landlord had triggered its obligation to take the lease, even though it was already trading from the premises. It claimed that the landlord had failed to comply with the mechanism prescribed by the agreement for lease, which required the landlord to ensure that the tenant received notification before its agent inspected the premises with a view to issuing a certificate of practical completion.
The litigation highlights the difficulties of satisfying all parties at such a key milestone. Developers will strive to avoid any unnecessary delays. By contrast, buyers and tenants will be keen to ensure that a certificate of practical completion certificate is not issued prematurely. Crucially, developers will also want to ensure that practical completion under the building contract constitutes practical completion for the purposes of their agreements with buyers and tenants, and cannot be revoked under their sale or letting agreements. The judge decided that the developer had achieved that here.
The provisions enabling the tenant to participate in the process leading up to the issue of the certificate were not a condition precedent to the issue of the practical completion certificate. The agreement gave the tenant the opportunity to be present at the inspection and to comment, but provided that the landlord’s agent was entitled to issue a certificate in accordance with the provisions of the building contract and his own judgment.
The parties could have agreed that there were to be two practical completion certificates – one for the purposes of the building contract, and another for the purposes of the agreement for lease – but they had not made any provision for this. The agreement for lease defined the certificate of practical completion as being “the statement of practical completion … to be issued under the building contract”, and did not provide for parallel certificates. Consequently, the tenant was legally obliged to complete the lease, despite the landlord’s failure to give it an opportunity to participate in the process leading up to the issue of the certificate of practical completion.
Nonetheless, there were other remedies that the tenant might pursue. The agreement for lease provided for a reference to an independent expert if the tenant objected to the practical completion certificate, or took issue with any snagging list. The expert was not entitled to set the certificate aside, but was able to postpone the rent commencement date under the lease by such period as was fair and reasonable in the circumstances. Alternatively, the tenant may be entitled to claim damages for the landlord’s breach of contract.
Allyson Colby, property law consultant
