Guide to Practical Completion

Practical completion can be a difficult time for both the owner and contractor when the correct procedures outlined in the contract are not followed. Practical completion is generally when the works have been completed by the builder, and there is a detailed process to follow in order for handover to take place.

Under most residential construction contracts, the definition of Practical Completion means the day when the subject work is completed:

• in compliance with the contract, including all plans and specifications for the work and all statutory requirements applying to the work; and
• without any defects or omissions, other than minor defects or minor omissions that will not unreasonably affect occupation; and
• if the building owner claims there are minor defects or minor omissions — the building contractor gives the building owner a defects document for the minor defects or minor omissions.

A defects document is a document that lists the minor defects and minor omissions in the work that the building contractor and building owner agree exist and when they will be fixed. The reason the definition of practical completion does not include minor defects and omissions is to enable the owner to take possession of the home while retaining rights to have all work completed under the defects liability period.

The Practical Completion Process

As the builder reaches Practical Completion you will likely receive from them a Notice of Practical Completion, which will have a Defects Document attached to it and a final invoice. Many residential construction contracts will also make provision for there to be a final walkthrough with the builder and homeowner prior to handover.

The defects document may have items listed that the builder agrees need to be addressed. The most common item on a defects document is paintwork. You, the homeowner, can agree with these items, and if you think that there are further defects you can add to this list. Some owners will engage an external building inspector to assist them with practical completion and handover. It is a personal decision as to whether you consider this is worth it.

If you agree that practical completion has been reached, then you must pay the final claim (invoice) to the contractor within 5 working days of receiving it.

If you do not agree that Practical Completion has been reached:

• You must give written notice stating why the works have not reached practical completion, within 5 working days of receiving the builder’s Notice of Practical Completion. This notice must detail your requirements for reaching practical completion.
• Contractor’s response: where you dispute Practical Completion, the builder must attend to those items the builder believes are necessary to reach Practical Completion. On completion of that work the builder must give the owner a second Notice of Practical Completion. Payment will then be due within 5 business days from when the owner receives the second notice.

It is important to remember that practical completion is not the same as handover. Under most residential contracts an owner is not entitled to receive the keys or possession of the works until final payment has been received (unless the contractor provides early possession).

Things to Look Out For

• Be aware that the home may be at Practical Completion even with minor defects. Most owners will be keen to move into the property even if there are minor items to be remedied, such as nicks in the paintwork (for example).
• The contract (or the building regulator) will set out a Defects Liability Period where the builder can get minor defects and omissions remedied. This period is often 6 months from the date of practical completion.
• Some defects may not be apparent until you move in. Items such as leaks when a tap is turned on may not be noticeable until the house is in use; the builder must still fix these items within the defects liability period.
• The builder is not obliged to give you possession of the property until they are paid in full.
• Remember insurance; once practical completion has been reached then you will be responsible for the property, so you must insure it.