Construction Contract & Claims Management Podcast Series – EP2: Pitfalls of Suspending or Terminating a Construction Contract

The suspension or termination of construction contracts can have significant commercial implications for developers. No doubt, developers will already be aware that the right to suspend and, in particular, terminate, a construction contract should be used sparingly. But what are the potential pitfalls to be mindful of if it becomes necessary to suspend or terminate a construction contract, or if one is on the receiving end of a suspension or termination notice?

We are pleased to share with you a podcast hosted by Herbert Smith Freehills’ Construction & Infrastructure Group which explores the legal and practical issues arising from the suspension or termination of construction contracts.

The episode can be found on iTunes, Spotify and SoundCloud.

This episode is also accompanied by a checklist which sets out some of the key matters to be considered when terminating or suspending a construction contract. The checklist can be viewed and downloaded here.

This is the latest episode in Herbert Smith Freehills’ ‘Construction Contract & Claims Management’ podcast series. In the next episode in this series, we will be discussing how to assess the legal merits of construction claims, with a particular focus on claims brought by contractors against employers.

For further information please contact:

Jake Reynolds
Jake Reynolds
Associate (Australia), construction and infrastructure, London
+44 20 7466 2370

Noe Minamikata
Noe Minamikata
Professional support lawyer, construction and infrastructure, London
+44 20 7466 2838

Construction Contract & Claims Management Podcast Series – EP1: Variations to and under a Construction Contract

To ensure that projects remain viable and achievable, the power to vary the terms of, or the scope of works under, construction contracts can be essential for developers, particularly in times of political and economic uncertainty. But what is the difference between variations to and variations under a construction contract? Although the two concepts are easily confused, the distinction is very important given the significant differences in the implementation and outcome of each.

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Landlords’ motives for redevelopment – good, bad or irrelevant?

Today the Supreme Court will hear the case of S. Franses Ltd v The Cavendish Hotel (London) Limited, a case which property litigators have been following closely since last year. The case concerns a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). If the tenant is successful in today’s hearing, the evidential burden on landlords contemplating redevelopment could increase dramatically. Continue reading

Court Interprets Obligation in a Standard Form Construction Contract to use all due diligence to obtain planning approvals

A commonly encountered provision in the standard form JCT Building Contract (2005 edition) was interpreted by the Court of Appeal to include an implied obligation on a developer to use “all due diligence” to obtain planning approvals. The phrase “all due diligence” was held not to require the developer to ensure that planning approvals were in fact granted, or that they were granted within sufficient time to prevent delays. At most it required the developer to make a timely application containing sufficient information and to co-operate with the Local Authority during the planning process.

The decision demonstrates the limits of the obligations commonly entered into by developers in the UK in relation to planning approvals.

1. Facts of the case

2. Developer responsible for Planning Approvals

3. Obligation to exercise “all due diligence”

4. Delays caused by Local Authority

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Increased scope of contractors’ design liability

The Supreme Court in E.ON v MT Hojgaard has held that apparently inconsistent provisions in a design and build contract relating to standard of skill and care as against the strict requirements of a technical output specification may both be enforced. This is likely to increase the scope of a contractor’s liability unless express provisions indicate otherwise. E.ON v MT Hojgaard could be the construction “case of the year”, as it will have an effect on the drafting of all construction contracts where the contractor (as often occurs) has a design role.

A brief note of the main points of the case are below. We plan to produce a more detailed briefing in due course. If you would like to receive a copy, please contact us. Continue reading

The limits of good faith

Author: Michael Mendelblat, Professional Support Lawyer, Construction and Engineering, London

 

The NEC Form of Contract is now in wide use in construction projects. The first clause says that the parties "shall act as stated in this contract and in a spirit of mutual trust and co-operation", often referred to as "good faith". What this means in practice is a question of importance for the development industry, both in relation to this particular contract and to the numerous other standard form or bespoke arrangements where "good faith" obligations are included.

 

The extent of the good faith obligation was considered in a recent case, Costain v Tarmac. Here the Court was not prepared to allow a contractor to escape the effect of an express time bar clause by relying on the duty of good faith as imposing a positive obligation to point out its effect. The court commented that the express duty in this case said little more than was previously thought to be implied into all construction contracts in terms of a duty to co-operate. So, whilst a good faith obligation prohibits unreasonable conduct which is without regard to the interests of the other party, it does not, it would appear, extend to informing the other party about the adverse effect of a particular term of the contract of which it should already be aware.

 

Good faith clauses, therefore, do not prevent parties from relying on express terms of the contract. The effect is confined to a restraint on unreasonable conduct amounting to improper exploitation of the other party.

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When quiet enjoyment means just that

Author: Julian Pollock, Partner, Real Estate, London

Earlier this year, the courts decided that, even if there is an express right to carry out works in a lease, a landlord cannot ride a coach and horses through a quiet enjoyment covenant or the obligation not to derogate from grant.  They must take all reasonable steps to minimise disturbance to their tenants, including:

  • notifying the tenant as part of lease negotiations of any intended works;
  • keeping the tenant notified of the programme of works, how long they will last and, how disturbance is proposed to be minimised;
  • ensuring that all practical measures are implemented by the contractor and project manager; and
  • bearing in mind that a higher standard of reasonableness may be required where the landlord is carrying out works for its own benefit.

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Getting ready for high speed broadband

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Author: Michael Mendelblat, Professional Support Lawyer, Construction and Engineering, London

From 1st January 2017, all new buildings and many renovations will be required to incorporate provision for infrastructure to connect to high speed electronic communications networks. This is the effect of the Building (Amendment) Regulations 2016 implementing an EU Directive to the same effect. The regulations apply to works in respect of which Building Regulations approval is sought after 1st January 2017. From that date, they apply to all new building works (with certain exceptions) and also apply to major renovation works affecting wired or wireless network access infrastructure, unless the cost of compliance would be disproportionate to the benefit gained.

The requirements set out in the Regulations are supplemented by an Approved Document giving guidance on how to comply with a new Part R of the Building Regulations. The effect of the new Regulations and the Approved Document is that building work must be carried out so as to ensure that a building is equipped with high speed-ready physical infrastructure up to a network termination point for electronic communications networks. This is in order to reduce future connection costs, even if actual super-fast connectivity is not immediately available.

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Compensation for closure of a dangerous structure

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Author: Michael Mendelblat, Professional Support Lawyer, Construction and Engineering, London

In this post, we examine the Supreme Court decision in the case of Hastings Borough Council v Manolete Partners Plc on 27 July 2016.  The court considered whether a local authority was liable to pay compensation where it had taken emergency action under the Building Act 1984 to close a building which was in a dangerous state (Hastings Pier). 

Anyone who sustains damage as a result of the closure can claim compensation for their loss under the 1984 Act in relation to a matter as to which he is not himself in default.  The court decided that, on the facts of the case, a leaseholder was not in default as it was not legally responsible for the state of the building or the events which triggered the council's action. Therefore the local authority was liable to pay compensation.

However, the court also decided that "default" did not simply refer to default under the Building Act under which the council had acted.  The case is discussed in more detail below.

1.The facts

2. The Appeal

3. Conclusion

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Buildings oversailing a public highway: licence for construction and alterations

Authors: Ben Elkington, Associate, Real Estate and Martyn Jarvis, Associate, Planning, London

In this post, we consider the requirement to obtain a licence under section 177 of the Highways Act 1980 for construction of, and alterations to, a building which oversails a public highway.

1. Construction of a building oversailing a public highway

Section 177 prohibits the construction of a building over any part of a highway maintainable at the public expense without a licence from the relevant highway authority (a section 177 licence), except in the exercise of statutory powers. Our experience is that this is fairly widely known in the property industry and investors looking to acquire a property comprising a building which overhangs a public highway are conscious of checking whether the relevant licence has been obtained.

Consequences of failure to obtain a section 177 licence for construction:

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