This article provides an overview of partial possession and sectional completion, with particular focus on the position under JCT/SBCC traditional and design & build contracts. Early use by the employer is also considered. Although these three concepts have some similarities and can be easily confused, there are key differences and consequences which should be kept in mind from the perspectives of both an employer/developer and a contractor.

Comparison of partial possession and sectional completion

Point / issuePartial possessionSectional completion
Contractor consentUnder JCT/SBCC, if the employer wishes to take possession of any part/s of the works before Practical Completion ("PC"), the contractor's consent is required for this. The contractor's consent is not to be unreasonably withheld or delayed.The contractor's consent is not required for sectional completion. However, the Contract Particulars section of the JCT/SBCC booklet needs to be completed to allow for sectional completion, i.e. descriptions of the sections, dates of possession for each section, dates for completion for each section, section sums and liquidated damages for each section.
Practical completionOn obtaining the contractor's consent to partial possession, under JCT/SBCC traditional contracts the contract administrator gives the contractor notice identifying the part/s taken into possession (the "Relevant Part") and the date on which the employer took possession (the "Relevant Date"), but under JCT/SBCC design & build it's the contractor who issues this notice to the employer setting out the Relevant Part and Relevant Date.

On partial possession, the employer may take possession of the Relevant Part and PC of the Relevant Part is deemed to have occurred on the Relevant Date.

Whether or not the works are actually complete is not relevant for the purposes of the partial possession mechanism.
On PC of a section being achieved, the employer's agent/contract administrator would issue a section completion certificate, setting out the date (in their opinion) on which PC of that section occurred under the building contract.
Consequences...
Rectification periodThe rectification period for the Relevant Part starts to run from the deemed PC date.The rectification period for the relevant section starts to run from its PC date, as set out in the section completion certificate.
Insurance / riskRisk of loss or damage and insurance responsibly for the Relevant Part is passed back to the employer on the deemed PC date.Risk of loss or damage and insurance responsibly for the relevant section is passed back to the employer on the sectional PC date, as stated in the section completion certificate.
Liquidated damages (LADs)The LADs specified in the contract reduce by the same proportion as the value of the Relevant Part to the Contract Sum or Section Sum (as appropriate).No calculation on the reduction of LADs is required on sectional completion as where there is sectional completion LADs can be included in the contract on a per section basis.
RetentionThe employer typically releases half of the retention monies for the Relevant Part to the contractor.The employer typically releases half of the retention monies for the relevant section to the contractor.

Early use by the employer v partial possession

The JCT/SBCC contracts also allow the employer (with the contractor's consent) to use or occupy the site / works or part of them "for storage or otherwise" before PC. This is subject to the insurers of the works and (if appropriate) the existing structures being notified and confirmation being obtained from them that such use or occupation does not prejudice the insurances. The contractor's consent shall not be unreasonably witheld or delayedunder JCT/SBCC.

Early use does not trigger the certification of PC or deemed PC and the resulting effects on commencement of the rectification period, release of retention monies or LADs (which remain wholly deductible by the employer). However, if the employer delays or disrupts the works, it may trigger claims by the contractor for extensions of time and/or additional money under the contract.
The distinction between partial possession and early use can be difficult to apply and this will largely depend on the particular circumstances and, of course, the terms of the contract. Correspondence between the parties can also pay a key role here.
Examples of where, in the Courts' view, the employer is deemed to have taken partial possession (as opposed to exercising their right of early use) are situations where:

  • the employer has exclusive possession of the Relevant Part, other than to allow the contractor access to rectify defects; or
  • although the employer does not have exclusive possession, the contractor has given up possession and has in reality been granted a sub-licence of the Relevant Part by the employer to finish incomplete works.

The interpretation of the JCT/SBCC wording of "or otherwise" is potentially very wide and may include things such as an employer hosting a pre-opening event at the development, for example. This is a mechanism which may be potentially useful to employers in certain situations and contractors should keep this in mind especially if when the terms of the contact are being negotiated the employer is seeking to remove the requirement for contractor consent.

Final thoughts

If you, as the employer, are undertaking a project which involves two or more separate elements (e.g. the construction of multiple units) where construction may be phased and dates of possession and/or dates for completion of the separate elements could be different, it is probably a good idea to include sections in your building contract. This will also be good from the contractor's perspective, as it achieves certainty.

Care should be taken when drafting and negotiating partial possession and early access clauses and considerations relevant to the particular project should be kept in mind throughout this process.

Employers and contractors should check contractual provisions carefully to establish whether the employer has taken partial possession or are exercising their rights of early use, and quick assumptions should not be made about what one applies.

Should you wish to discuss partial possession, sectional completion and/or early use by the employer mechanisms in relation to building contracts already in place or contracts still to be negotiated, please don't hesitate to get in touch, whether your are an employer/developer or a contractor.

Contributors

Jane McMonagle

Partner & Head of Transactional Construction, Infrastructure and Projects

Alistair McLean

Consultant