Practical Law

We don’t see the section 106 residential occupier exemption appearing in the law reports all that often, possibly because the law surrounding its meaning is fairly well settled, particularly since Coulson J’s 2013 judgment in Westfields Construction Ltd v Lewis.

Therefore, I was rather intrigued by the judgment in Howsons Ltd v Redfearn and another. It dates from the summer but is an interesting read because the judge, HHJ Nigel Bird, appears to have extended the section 106 residential occupier test to cover the question of lawfulness of occupation.

Section 106 exemption

I know you probably don’t need a reminder, but section 106 provides that a contract with a residential occupier is excluded from the statutory protections provided by the Construction Act 1996 in terms of payment and adjudication. A contract with a residential occupier is one that principally relates to “operations on a dwelling” that one of the parties to the contract “occupies, or intends to occupy” as their residence.

Most of the case law over the years has focused on the meaning of “occupies” or “intends to occupy”, and I’m not sure I’ve ever seen an issue related to the lawfulness of that occupation debated before.

Howsons Ltd v Redfearn and another

Mrs and Mrs Redfearn owned a property in North Yorkshire that had the benefit of planning permission to convert it from a barn into a “live/work unit” and not a dwelling. The planning permission was subject to various conditions and was granted by reference to plans dealing with the internal layout and external appearance of the barn. The local authority’s local plan dealing with “conversion of buildings to employment-generating uses with ancillary living accommodation” stated that planning permission would only be granted if certain requirements were met. One of the requirements expressly stated that proposals for substantial residential accommodation with a token area for business use were not permitted. Also, as a general rule, planning permission to convert barns to residential use was not granted, nor were people allowed to apply to convert live/work units to residential dwellings.

With that as the background, Howsons (the contractor) was employed to carry out building works at the barn, which it did by reference to the drawings used in the planning permission. Apparently these drawings described rooms as “conference rooms, workshops, meeting rooms, office kitchen and office bathroom”. However, rather than ending up with a live/work unit, the Redfearns ended up with a family home in an isolated but “idyllic spot”.

We don’t know why the Redfearns ended up in dispute with the contractor, but it led to an adjudicator’s decision dated 22 March 2019. Presumably that decision awarded the contractor a sum of money that went unpaid and that is why the contractor started enforcement proceedings. In their defence, the Redfearns relied on section 106 to resist enforcement, arguing that adjudication did not apply and the adjudicator had lacked jurisdiction.

What did the judge say?

The judge carried out a careful review of the local planning requirements and the planning permission that was granted, as well as looking at how the Redfearns actually used the barn. On their own evidence, they said the “work” bit of the live/work unit was minimal (only ten per cent), with just a small home office and no business run from the barn. However, they did rely on a declaration that had been signed in response to a local planning authority visit in June 2017. This said 31% of the barn was used for work.

The judge seemed unconvinced by this and was clearly of the view that despite what may have been said to the local planning authority (and whether that authority was satisfied its planning conditions were being met), the reality was that the Redfearns had failed to establish their use of the barn was lawful. As they couldn’t do this, they couldn’t rely on the section 106 exemption and summary judgment was granted in the contractor’s favour.

Interestingly, obiter, the judge also looked at the nature of the works that the contractor carried out. However, he did this by reference to the “lawful use” of the barn, taking the 2017 declaration as his starting point. As this said 69% was a dwelling, 31% was work, he still concluded that the works did not “principally relate to operations on a dwelling” and that it was not possible to establish which bits of the barn the works in dispute related to – “the question is more subtle than that”. The reality was, “a good deal of the works related to both the area in which the [Redfearns] lived and what ought to have been the business areas”. Arguably, he was being generous doing this. If he had accepted Mrs Redfearn’s evidence that it was 90:10, it would have been interesting whether the same conclusion would have been reached. Perhaps, the point may not have arisen at all.

What do I make of this?

As I understand it, this is the only reported judgment dealing with this issue. It remains to be seen whether the question of lawfulness of occupation arises in other residential occupier cases or whether this case stands alone as being fact specific. Either way, it demonstrates that parties cannot “treat planning control as an inconvenience which they are free to disregard”, particularly if they wish to take advantage of the section 106 exemption from adjudication.

In my experience, section 106 residential occupier jurisdictional challenges are uncommon, perhaps because of the number of residential occupiers who contract for works on JCT forms where they automatically include a contractual right to adjudicate using the Scheme for Construction Contracts 1998, unless they amend the standard form.

In my view, the residential occupier exemption can be more complex to deal with than the other exclusions (think Jonathan’s Room 101), and it is better for all concerned if parties positively elect to “opt in” to using adjudication. As this case demonstrates, it can save both parties considerable time and money, and may reduce the number of jurisdictional challenges. However, in view of the complex nature of modern day adjudication, and also its breakneck speed, I can understand why it may be preferable to preserve the Status Quo and for residential occupiers to continue to be excluded from the provisions of the Construction Act 1996.

And finally, I wonder if the local authority planning officer is aware of this judgment and has been back for another visit??