Construction – fittings and furniture ownership?

Fittings and furniture supplied under a building contract – passing of title – a suggested amendment to JCT

Construction contracts for the development of hotels and care homes often include the supply of some fittings and furniture by the contractor. Depending on the type of facility, the cost of such fittings and furniture can represent a significant sum. If the Employer becomes insolvent after the fittings and furniture are installed, but before paying, the question of ownership comes under the spotlight.

In short, under the JCT D&B terms, there are two categories of on site goods and materials. They are those incorporated into the works and those not yet incorporated into the works. Clause 2.21 provides that title in materials not yet incorporated remains with the contractor until the materials are paid for. Once though the materials are incorporated into the works, it appears that title passes without the need for payment, although the JCT terms do not state this expressly. It is likely that this would apply to fittings and furniture being incorporated (albeit not fixed) into the works as much as bricks and mortar. Thus when furniture is unpacked and/or assembled and placed wherever its intended location happens to be, it is likely that title passes to the Employer.

Given that any fittings and furniture are likely to be the last items provided by the contractor, this amplifies the age old risk of the Employer becoming insolvent before goods and materials are paid for In such circumstances, Contractors would benefit from clarification in the JCT terms that title in used but unfixed materials will not pass until payment is made (such that if payment is not made, the Contractor retains title to the goods and can recover them to mitigate his losses due to non-payment). Contractors could potentially mitigate this risk by a small amendment to clause 2.21 (shown in red) to explicitly state that the retention of title wording at clause 2.21 extends to used but unfixed materials, as follows:

Site Materials shall not be removed except for use on the Works unless the Employer has consented in writing to such removal, such consent not to be unreasonably delayed or withheld. Where the value of any such materials or goods, or materials and goods incorporated or used in the works which remain unfixed, has been included in any Interim payment, those materials and goods shall become the property of the Employer, but, subject to Insurance Option B or C (if applicable), the Contractor shall remain responsible for loss or damage to them.”

This amendment is by no means bullet proof, but equally the original clause 2.21 is not well drafted. The amendment is therefore a compromise between sticking with the original style of the clause and trying to incorporate further protection for the contractor.

For more information about this or specific advice on your contracts, please contact us.

A more detailed analysis of the JCT Terms

Throughout JCT D&B terms, materials on site are divided into 2 categories.

Clause 2.21 refers to Site Materials. Site Materials are defined at clause 1.1 as “all unfixed materials and goods delivered to and placed on or adjacent to the Works which are intended for incorporation therein.”

Within the payment provisions, clause 4.14.1.1 refers to “work properly executed”. Clause 4.14.1.2 also refers to Site Materials .

In the insurance provisions, at clause 6.8, All Risks Insurance cover is for damage to “work executed and Site Materials”.

In clause 8.12, following the contractor’s termination of the contract for the Employer’s insolvency, the contractor is required to remove from site “all goods and materials (including Site Materials)”. At clause 8.12.3.1, the contractor is required to prepare an account to include amounts for “work properly executed”. There is no suggestion that once work has been “properly executed” that it can be undone in any way.  Thus it seems that the reference to “all goods and materials” does not extend to those used in the executed work. Otherwise it would mean that the contractor would be required to both include an amount for the work as well as remove goods and materials which he is including in his account. This would theoretically amount to double counting.

Thus the two categories of materials are firstly materials and goods within work properly executed and secondly unfixed materials and goods for incorporation in the works. Or more simplistically, materials which have been used in the works and those intended for use.

JCT provides no express subdivision between used materials and goods which are fixed to the land and those which remain unfixed once used. The reference to “unfixed” materials in the definition of Site Materials is merely a description of the condition of materials before they are used. It does not imply that those materials will at some point become fixed. Accordingly, it would seem that furniture and bricks and mortar are to be treated in the same way (both before and after use in the works).

Under clause 2.21, using our terminology, title in the unused materials only passes on payment. It is not expressly stated when title passes in the used materials. It would be strange though if the express prohibition against removal of unused materials at clause 2.21 were not impliedly intended to extend to used materials. It might also be argued that as it was intended that used and unused materials be treated differently, had it been intended that title in used materials only passes to the Employer on payment, this would have been expressly stated.

This argument is assisted by the drafting of clause 2.21. That clause provides that once unused materials have been paid for, those goods become the property of the Employer. The assumption arising from clause 2.21 is that the parties intend that until they are paid for, those unfixed materials are not the property of the Employer. It is unlikely that the same negative, without expressly saying so, was intended for used materials.

Further, an extension of the above analysis of clause 8.12 is that if following the contractor’s termination of the contract the contractor is not required to remove the used goods and materials, it was intended that title passed to the Employer as soon as they were used.

In summary, the JCT contract expressly (more or less) provides that title in materials on site which are not yet incorporated in the works, passes to the Employer on payment. Title in materials which have been incorporated in the works probably passes to the Employer on incorporation, regardless of whether the materials are fixed to the land. A minor amendment in the Contractor’s favour could provide that this will not apply to unfixed but used materials. This may then allow the Contractor to retain title in those materials until payment is made, thus offering some protection in respect of the value of those goods, particularly where the Employer becomes insolvent.

 

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