Citation: [2026] EWCA Civ 511
James Frampton (instructed by Archor LLP) acted for the Appellant (“RBH”) in this appeal, in which the Court of Appeal made notable observations in respect of two key aspects of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA 1996”): the “residential occupier exception” and the requirements for a valid pay less notice.
Background
RBH is a building contractor who Mr and Mrs James employed to provide site and project management services in relation to a large luxury house known as Ferndown in Saunton, North Devon. A contract was agreed orally, through which RBH was to be paid a fee for supervision and project management. This arrangement was then modified such that RBH would be reimbursed any costs incurred in procuring sub-contractors and materials.
Following disputes, RBH ceased work around April 2024, by which time it had been paid £1,310,039.04. In November 2024, RBH made an application for payment of £663,016.16. Mr and Mrs James responded with a “withholding notice” stating their intention to withhold payment of £633,016.16 and setting out their reasons for doing so.
RBH proceeded with an adjudication on the basis that the “withholding notice” was an invalid pay less notice. In response, Mr and Mrs James argued that the HGCRA 1996 did not apply to them because they were “residential occupiers” excluded by section 106 of the Act, and as such the adjudicator had no jurisdiction. The adjudicator rejected that argument, finding that Mrs and Mrs James were not residential occupiers and therefore he had jurisdiction.
Mr and Mrs James also argued that their “withholding notice” was a valid pay less notice, but again the adjudicator disagreed. As such, he awarded RBH the sum of £663,016.16 plus interest, and required that Mr and Mrs James pay all his fees of nearly £10,000 plus VAT. Mr and Mrs James did not pay, which led to enforcement proceedings, and they also sought declarations about the validity of their “withholding notice”.
Residential occupier
Section 106(2) of the HGCRA 1996 provides that:
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.
Mr and Mrs James argued that they had intended to occupy Ferndown as their residence at the time the contract was made, notwithstanding that the property was rented out for around 25% of the year. They said that later changes due to financing issues did not affect their initial intention or displace the application of the “residential occupier” exception at the outset of the contract.
RBH relied on Mr and Mrs James’ admitted intention to rent out the property and on development loan documents signed by Mrs James, which included declarations that neither they nor their family intended to reside at the property and that the project was for business purposes. RBH argued that those express undertakings were plainly at odds with their position now that they had intended to reside in the property.
At first instance, the TCC found that the residential occupier exception might be engaged and therefore declined to grant summary judgment. Although the loan documentation and undertakings required explanation, Mr and Mrs James had advanced sufficient evidence to prevent the issue from being determined summarily.
On appeal, the Court of Appeal considered the residential occupier exception for the first time. Having reviewed the limited existing authority, it set out the following principles:
- The burden of proof lies on the party seeking to rely on the statutory exception.
- The question of intention to occupy is one of fact. While it may be suitable for summary determination given the relatively low threshold, it will not be appropriate where there is credible evidence on both sides.
- The fact that the issue arises in the context of adjudication enforcement is irrelevant. There is no presumption in favour of enforcement where it is realistically arguable that the adjudicator lacked jurisdiction.
- The relevant intention must be assessed at the time the contract was entered into.
- The test comprises two elements: (i) a bona fide intention to occupy in the future; and (ii) a realistic, rather than a fanciful, prospect of that intention being realised.
- The intention to occupy must also have a temporal aspect, namely that occupation is intended within a reasonable period following completion. For example, an intention to occupy only after letting the property for 20 years would not suffice.
Applying these principles, Coulson LJ agreed with the judge at first instance that the conflicting evidence gave rise to sufficient doubt to render summary judgment inappropriate. The issue of whether Mr and Mrs James qualify as residential occupiers must therefore be determined at trial.
Pay Less Notice
The “withholding notice” contained 11 bullet points setting out the reasons for withholding the sums claimed. The TCC held that a reasonably objective reader, with knowledge of the contract works, would have understood how those points related to the payment application. The bullet points identified which elements were disputed and why. The court rejected the argument that a valid pay less notice required a detailed arithmetical calculation.
On appeal, the issue was whether the notice satisfied the requirements of section 111. Coulson LJ agreed with the TCC that it did and considered various authorities to arrive at the following principles:
- The question is how a reasonable recipient would have understood the notice, not how the recipient in fact understood it.
- The notice must be construed in its factual and contractual context, with the reasonable recipient taken to have knowledge of the relevant contract and of its own payment notice to which the pay less notice responds.
- A payment notice or a pay less notice must clearly set out the sum considered due and the basis on which that sum is calculated. Beyond that, it is a question of fact and degree, but the court will be “unimpressed by textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis”.
- No different interpretative approach applies to different payment notices, but the potentially serious consequences of non-compliance are relevant to the reasonable recipient.
- There is no requirement for a valid notice to have a particular title, or to make specific reference to a relevant contract clause or term of the Scheme.
- A useful test is whether the notice provides an adequate agenda for adjudication on the true value of the works.
Coulson LJ concluded as follows:
In summary, the content of payment notices and payless notices should be considered in a common-sense way. They should not be allowed to become tick box exercises, or traps for the unwary. In reality, the question is a simple one. Does the payment notice explain in a tolerably clear way what is due and why? Does the payless notice explain, also in a tolerably clear way, what (if any) part of the payment notice is said to be due, and why less is being paid than has been sought? It is tempting to regard everything else as lawyerly over-complication.
The Court of Appeal expressly endorsed the requirement that a notice explain what is due in a “tolerably clear” manner. This is likely to become the new summary test in interpreting the validity of payment documentation.
Commentary
Unlike many adjudication enforcement cases where courts favour summary enforcement, both the TCC and Court of Appeal considered there was sufficient doubt to justify a full trial. While this is not a definitive finding that the residential occupier exception applies, it is the first case where the threshold for refusing summary judgment was met. The Court of Appeal emphasised that the issue is highly fact specific.
The observations on pay less notices are of broader practical importance. The Court provided what is likely to become the leading guidance on the validity of such notices. Overall, the Court warned against overly technical challenges, reinforcing that payment notices should not become a battleground for procedural advantage.
