English law does not impose any statutory requirements on builders that dictate the pace of construction. Consequently, where a builder agrees to construct a building for a buyer, the builder is not under any statutory obligation to commence or complete construction within any particular period.
Well-drafted contracts for the construction and sale of new buildings will therefore contain provisions dealing with commencement of the work and its subsequent progress. Completion is usually triggered by the service of a notice confirming that construction is complete. In addition, the contract may require the builder to pay liquidated damages if completion has not occurred by a specified date (although most contracts contain provisions relieving builders from liability for delays beyond their control). Another important provision is the “longstop date” – the date by which construction must have been completed, failing which the buyer will be entitled to rescind.
In commercial transactions, principal terms such as this are carefully negotiated between the parties. However, there is less room for negotiation in the residential market place. Most house builders produce standard form contracts, which require them to complete the building work in a good and workmanlike manner and to certain standards. Such contracts specify that the building work will be completed “within a reasonable time” and do not include provisions enabling the buyer to withdraw.
The Office of Fair Trading has reservations about such terms. It believes that they place the burden on buyers to show that delays are unreasonable. It also disapproves of terms that do not permit buyers to bring issues concerning delay to a head and that limit their ability to withdraw from contracts and to obtain refunds when delays become unreasonable: see Homebuilding in the UK: a market study (September 2008).
North Eastern Properties Ltd v Coleman [2009] EWHC B18 (Ch); [2009] PLSCS 249 illustrates the problems caused when building falls behind schedule and contracts are drafted in such terms. The buyer expected the property to be ready in December 2007. However, due to problems with the contractor, completion of the work was delayed until June 2008. The buyer had served a notice to complete in May 2008, with which the builder failed to comply, and declined to comply with a subsequent notice to complete served by the builder in July.
The judge ruled that the builder had failed to comply with its contractual obligation to construct the property with dispatch, but decided that the buyer’s notice was ineffective. The provisions in the contract relating to notices to complete applied after the completion date had passed, that is after the service of a notice by the builder stating that physical construction was complete and requiring legal completion to occur.
Alternatively, the buyer’s notice was too short to make time of the essence of the construction work, because it required the builder to complete within 10 working days, when a reasonable time for completion would have been longer. Consequently, the contract for sale remained in force and the buyer was bound to complete its purchase.
Allyson Colby is a property law consultant
