Agreements for lease with development obligations—practical completion
Agreements for lease with development obligations—practical completion

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Agreements for lease with development obligations—practical completion
  • When does practical completion occur?
  • Challenging practical completion

Under an agreement for lease, the tenant’s obligation to take the occupational lease only arises once the developer’s works have been completed and are fit to be taken over by the tenant. This will occur when the works are certified as being practically complete.

This expression is borrowed from the standard forms of building contract which refer to the supervisor of that contract (often referred to as the 'architect' or 'employer’s agent') issuing a statement or certificate of practical completion when practical (or sometimes substantial) completion of the works is achieved.

When does practical completion occur?

There is no standard industry definition of practical completion. Consequently, ensure that the agreement for lease contains its own definition. Definitions often incorporate the terms:

  1. ‘complete and defect free’, or

  2. ‘capable of beneficial use and occupation’

The latter is the more usual because the former would appear to preclude the usual practice of certifying practical completion under the building contract with a snagging list setting out minor defects.

From the developer's perspective, the certificate issued under the building contract should stand as the required certificate under the agreement for lease, so that completion of the works under both the building contract and the agreement for lease occurs simultaneously. If certification under both the building contract and the agreement for lease is not simultaneous, the developer

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