Practical completion of works under a residential building contract is a concept that is often misunderstood. Upon practical completion the final progress payment is payable, the defects liability period under the contract begins to operate and the 6 year time limit to commence a regulated building service complaint against a builder begins to operate.
Typically, at the pre-handover inspection of the works, the owner produces a list of defective items that the builder will need to rectify. Occasionally, owners will withhold making the final progress payment asserting the house is not completed. Practical completion does not mean that the house is free of building defects. The test is whether the house is fit for occupation in a free and uninterrupted manner. In other words, the house is reasonably capable of being used for its intended purpose of habitation. There will often be circumstances in which defects are apparent, but they do not interfere with the enjoyment of the home, and therefore the house has reached practical completion. Conversely, a homeowner may be able to live, sleep, and eat in the home, but a defect such as a faulty balustrade, or an inoperable hot-water system could be so severe as to prevent free and uninterrupted occupation. Practical completion may not be deemed to have occurred under these circumstances and the final payment would not be due. The danger is that withholding final payment or making a part payment will entitle the builder under the contract to claim late payment penalty interest against the owner from the date of the claim until the full amount of the claim is paid. If you have received from your builder a notice that the building work has reached the stage of practical completion and you are not sure about making the final payment, you should quickly obtain legal advice from an experienced construction lawyer.
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