When the client moves in without a certificate

The client moves furniture into the ground floor while the second floor is still being fitted out. Nobody signs anything. Work continues around them.

This is called beneficial occupation, and it is one of the most common informal arrangements in construction. It is also one of the few that leaves every party worse off than a five-minute conversation would have done.

What is unresolved

• Insurance. The contractor’s all risks policy covers the works. It does not contemplate an occupied building with the employer’s staff and stock in it. The employer’s own policy has not started because there has been no handover.
• Damages. Liquidated damages continue to run at the full rate on a building the employer is partly using, which is difficult to sustain if challenged.
• Retention. No release has been triggered, so the contractor is financing security on a part it no longer controls.
• Defects. The rectification period has not started, and damage caused by the occupier is now indistinguishable from defective work.

The two proper routes

Partial possession. With the contractor’s consent, the employer formally takes the part. Practical completion of that part is deemed to have occurred, retention on it is released, damages reduce proportionately, insurance moves and the rectification period starts.

Use and occupation before practical completion. Some forms provide for this expressly. The employer uses part of the works with consent, but practical completion is not deemed to have occurred. Damages continue, retention is not released, and the contractor keeps risk, usually with an insurance endorsement obtained first.

The two are very different commercially. The first is a handover; the second is a licence to occupy a construction site.

Which one is right

If the part is genuinely finished and the employer is using it as a building, partial possession is honest and the consequences should follow. If the part is not finished and the employer is occupying for convenience, use and occupation is the right label and the contractor should not be losing its damages relief for the privilege.

What is not right is the third option, which is the one usually chosen: neither, with everyone hoping the question does not arise.

The conversation to have

Ask three questions before the furniture arrives. Which part, on what date, and under which mechanism. Then write it down and tell both insurers.

It takes an afternoon. Not having it takes six months of correspondence when something goes wrong, and something usually does, because a building with occupants and operatives in it at the same time is not a normal risk for anybody’s policy.