Are Residential Occupiers Of Property Excluded From The Construction Act?
This article examines the role that the Housing Grants, Construction and Regeneration Act 1996 (as Amended) (‘the Act’) plays in construction disputes. We look at whether residential occupiers are excluded from the Ac and the impact this has on resolving disputes. Our construction litigation team regularly advise on these issues and the Act. If you think you might be in a dispute, don’t hesitate to contact our team and we will be happy to help talk through your options.
Understanding the Section 106 Residential Occupier Exclusion
Under the Act, a party to a construction contract has the right to refer a dispute arising under the contract to adjudication.
However, this right to refer disputes to adjudication does not apply to construction contracts with a “residential occupier”, pursuant to Section 106 of the Act. A construction contract with a residential occupier means a construction contract which principally relates to operations on a dwelling which one of the parties to the contract occupies, or intends to occupy, as his residence. This will therefore include (but is not limited to) contracts for alterations, refurbishments and house extensions, where one party already lives in the property or intends to live in it after the works have been finished. The exclusion does not apply to properties that are buy-to-let.
Importantly, the parties to the construction contract can still include an express right to adjudicate within their contract and this will supersede the exclusion in section 106 of the Act, such that adjudication will be available to the parties, even where one of the parties is a residential occupier.
Key Cases That Define When the Exclusion Applies
Recent case law offers some clarity on how the courts define ‘residential occupier’, and how parties can voluntarily enter the adjudication process, effectively overriding the s.106 exclusion.
Westfields Construction Ltd v Lewis
In thecase of Westfield Construction Limited v Clive Lewis [2013] EWHC 376 (TCC) 1 WLR 3777, the dispute centred on whether the defendant could rely on the s.106 exception as a residential occupier.
The claimant alleged that the defendant did not occupy the property at the time the contract was made.
The court did not uphold the defendant’s claim that they were a residential occupier. They didn’t occupy the property at the time the contract was executed, and stated that they intended to let the building commercially when they signed the contract.
The court clarified that occupation is not just a moment in time when the contract is formed, but an ongoing action.
ICCT Ltd v Pinto – Waiver and Ad Hoc Agreement to Adjudicate
More recently, in ICCT Ltd v Pinto [2019] EWHC 2134 (TCC), a contractor referred a dispute with a residential occupier to adjudication, notwithstanding the section 106 exclusion and the absence of an express contractual right to adjudicate.
In this case, the Court found that ad hoc jurisdiction for adjudication could arise in circumstances where the parties, including a residential occupier, engage with the adjudication process. This emphasises the importance of obtaining advice early if you are faced with an adjudication, as you may not be able to rely on the exclusion if you are found to have accepted the jurisdiction of the adjudicator by your conduct.
The circumstances in which adjudication may still be available in relation to a contract with a residential occupier
Contractual Agreement to Adjudicate Overrides Exclusion
It’s becoming a more common feature in construction contracts for there to be a provision for adjudication, regardless of whether the project involves a commercial or residential property.
A contract containing an express provision for adjudication enables residential occupiers to benefit from the speed and lower cost of this process in the event of a dispute.
Waiver
As identified above, it is possible for a residential occupier to effectively waive the section 106 exclusion and grant an adjudicator ad hoc jurisdiction by participating in an adjudication.
Practical Steps Before Initiating or Resisting Adjudication
If a party has initiated adjudication, then time is of the essence. A respondent in receipt of a referral notice typically has only 7 to 14 days to respond.
The first step is to identify the terms of the relevant contract, including whether there is an express right to adjudicate. If you are a residential occupier, then you must be careful not to substantively engage with any adjudication and inadvertently grant ad hoc jurisdiction where there is no express right to adjudicate.
Resisting adjudication may be desirable, particularly for residential occupiers.. Additionally, a court claim may be more attractive due to the ability to recover your legal costs.
The Benefits of Adjudication
Adjudication is practical and efficient, and generally much cheaper than litigation. It’s no surprise that it’s the preferred method of dispute resolution in construction, an industry renowned for its delays.
Adjudication helps keep projects on track and construction businesses solvent. This is an incredibly powerful, niche process; one that even most firms of solicitors are not experienced in dealing with.
Adjudication is quick; an adjudicator can reach a decision within four to six weeks. For contractors they can receive payments without having to wait for the outcome of arbitration or a court judgment.
Adjudication is a more flexible process; parties can pick their adjudicator, and the process is less formal than arbitration or litigation. It’s also a far more private process, unless it becomes necessary to enforce the adjudicator’s decision in court, and thus is protective of a business’s reputation.
However, for a party for whom the adjudicator finds in favour, it may still be necessary to refer to the Technology Construction Court (TCC) to enforce a summary judgment. Getting this right is therefore fundamentally important- using a specialist team, understanding the risks and rewards clearly and cleanly are all of paramount importance.
It’s also worth noting that parties must bear their own costs associated with the process. An adjudicator doesn’t have any power to award costs unless the parties agree or there’s an express provision in the contract.
Frequently Asked Questions
Can a Residential Occupier Still Use Adjudication if the Contract Includes It?
Many new construction contracts routinely include adjudication as the preferred means of dispute resolution. If the employer is also a residential occupier, they can circumvent the provisions of Section 106 by including adjudication in the contract. Even if there is no contractual provision for adjudication, it may be sufficient for the parties to mutually engage in the process.
Does Occupation of a Second or Holiday Home Affect Eligibility Under the Act?
Residential occupancy can be infrequent and still qualify under the Act, but the application of the exclusion will always be fact-specific. What’s likely to have more impact is any commercial arrangement, for example, with a holiday home. This limits residential occupancy by virtue of its commercial nature.
How Does Mixed Residential and Commercial Use Impact Adjudication Rights?
Section 106 excludes construction contracts with residential occupiers, directing disputes towards the courts rather than adjudication. Mixed residential and commercial usage complicates the picture, as much depends on the proportional split between commercial and residential occupancy. If the primary usage is commercial, then adjudication and the associated rights are not excluded.
Contact Helix Law for Legal Advice on Construction Disputes
Adjudication is the preferred method of dispute resolution in the construction industry. It’s quick, flexible, and private, keeping businesses solvent and projects on track.
Expert advice is vital when negotiating a new construction contract or handling breaches and disputes between employers and contractors. The expert construction team at Helix Law can advise on contract terms and provide specialist and strategic guidance in the event of a dispute. Our construction adjudication and litigation team act nationally and are specialists in this field. Get in contact today and we will b happy to assist you.
