Case No. HT-2025-000039 , HT-2-25-000040 - [2025] EWHC 2005 (TCC)

I turn then to consider the residential occupation point. Section 106 of the 1996 Act provides as follows:

“(1)

This Part does not apply:

a)

to a construction contract with a residential occupier (see below) …

(2)

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 therefore goes to the jurisdiction of the adjudicator. If this exception is made out, the adjudicator had no jurisdiction to determine the dispute, and it would provide a complete answer to RBH’s claim for enforcement. Looking at the section, it is clear that there are two separate and disjunctive grounds on which the exception may arise: (i) where a party occupies the property as their residence; or (ii) where they intend to occupy it.

It appears to be the position that there is no reported case where this exception has been held to apply. I have however, been referred to four cases where the provision has been considered. Samuel Thomas Construction Ltd (2000) is an unreported case which was a decision of HHJ Overend sitting as a TCC judge at Exeter. It focused on the meaning of “principally”, which is not really an issue in this case. The contract involved the conversion of two barns - A and B - and the construction of a garage block for four barns. The employer intended to occupy barn B. The evidence before the Court was that barn B amounted in value to 65% of the total contract. The Court nevertheless held that the contract involved the conversion of one dwelling and one non-dwelling and so it did not principally relate to operations on a dwelling. As a result, the section 106 exception did not apply.

Howsons Ltd v Redfearn & Anor [2019] EWHC 2540 (TCC) was a decision of HHJ Bird sitting in this Court. He held that, to fall within the section 106 exception, the occupation had to be lawful. In that case, the alleged occupation was unlawful because it was contrary to the terms of the planning permission, which was for a live/work unit rather than a dwelling. In Edenbooth Ltd v Cre8 Developments Ltd [2008] EWHC 570, the Court held that the defendant could not rely on the section 106 exception for three connected reasons: first, the defendant was a company; second, the defendant was engaged in property development and third, the defendant company was not the registered owner of the properties which were owned by a director of the defendant as an individual.

The leading case and the most helpful one in the context of the case before me is Westfields Construction Ltd v Lewis [2013] EWHC 376, a decision of Coulson J (as he then was). That was an application to enforce an adjudication. The issue was again one of jurisdiction arising over the applicability of section 106. It is important to note that the issue appears to have been dealt with as a final hearing, not summarily, and there was oral evidence and cross-examination: see paragraph 1. The factual scenario differed from the present case. It appears that the defendant occupied the house at the time of the contract (although that was an issue in dispute) but (so it was held at paragraph 24) at all times he intended to let it out once the works had been completed. Coulson J noted at paragraph 10 that:

“Section 106 was intended to protect ordinary householders not otherwise concerned with property or construction work, and without the resources of even relatively small contractors, from what was, in 1996, a new and untried system of dispute resolution…In this way, section 106 excluded adjudication in respect of construction works carried out for those who occupied and would continue to occupy as their home the property that was the subject of the works (even if they had to move out when those works were carried out), or who had bought the property and intended to live there when the construction works were completed”. [underlining added]

He held further at paragraph 11 that:

“Above all, section 106 needs to be approached with commonsense: it ought to be plain, on a brief consideration of the facts, whether the employer is or is not a residential occupier within the terms of the exception”.

Before leaving this case, I note also that at paragraph 6 Coulson J (referring to his own decision in Shaw v Massey Foundations Piling Ltd [2009] EWHC 493 (TCC)) concluded that, in relation to intention to occupy, “what mattered was the employer’s intention at the time of formation of the contract”. In my judgment, that must be right. The question as to when the intention to occupy should be determined must be at the time when the contract is entered into. Otherwise, if a party intended to occupy at the time of contract and then, as the build progressed, changed their mind, the result would be that adjudication would be inapplicable and then applicable. There must be some certainty during a building project as to whether the works are subject to adjudication provisions or not. However, post-contract events may well be relevant and they can be taken into account in determining objectively the nature of the employer’s intention at the time the contract was entered into.

Turning to the facts, Mr and Mrs James have never occupied the house. Indeed, the house has now been put up for sale, and they accept that they now have no intention of occupying it. However, their case is that at the time of the contract until about November 2022, it was their intention to occupy it. They say their intention changed because their finances were such that they were compelled to put the property up for sale. As things stand, I understand that the property remains on the market. The factual issue which arises on the residential occupier point is, therefore: what was their intention objectively determined as at the time of the contract?

A substantial body of evidence has been put before the Court on this point. There is a good deal more evidence available to me than was available to the adjudicator. I have three statements from Mr James, three from Mrs James and two from Mr Huntley. The Jameses have also served a statement from their architect, Mr Plant. Additionally I have two witness statements from Mr James served in the adjudication and one from Mr Huntley.

As I have indicated, the evidence of Mr and Mrs James is to the effect that they intended to occupy their new home as their main residence. They purchased the property in 2019, and they planned to erect a new build home on the site and to reside in it. Mr James says that this was the culmination of years of planning after they decided to move from Essex to the Devon coast. At the time of purchasing the plot in 2019, they paid an additional 3% stamp duty surcharge for a second residential property. They subsequently sold their house in Essex and moved to Devon and reclaimed the additional stamp duty surcharge.

It follows therefore that they owned one house. They lived in a caravan on the site during the works. They registered with the local GP, and they were put on the electoral register. They say that the property was designed to Mr James’ personal specification. In particular, they highlight the installation of a basement lap pool, which was specified because Mr James is a keen swimmer who has competed in Ironman competitions. Mrs James has disclosed mobile phone screenshots which suggest that a local Devon friend thought they were building a home to live in and not a second home. Whilst they say that, at the time of the contract, they intended to live in the property, they do accept that it was always their intention that they would let the property out on an “Airbnb basis” during holiday periods, and they would do this for about 13 weeks of the year in order to repay the financing of the property. The architect for the project, Mr David Plant, has known the Jameses for many years. He has provided a witness statement which confirms his understanding that they intended to live in the new house.

For RBH, Mr Huntley’s witness statement is to the effect that he was never told that Mr and Mrs James intended to occupy the property, and, in his view, it was intended as a development property and not a self-build. RBH rely, in particular, on the commercial loans which Mr and Mrs James took out to finance and build the property and which included undertakings to the effect that the property will not be used as a dwelling by the borrower and that the loan will be used for business purposes.

Turning to the parties’ submissions on this point, Mr Frampton argues that the section 106 exception cannot apply. He emphasises that Mr and Mrs James did not occupy the property at the date of the contract, that they have never occupied the property, and they now admit that they do not intend to occupy it in the future. He submits that Mr James is a property developer. He says the Court can decide summarily, at this stage, that the section 106 exception does not apply.

Perhaps recognising that there are clearly potential factual disputes on the evidence. Mr Frampton focuses on certain points which he says are determinative, regardless of the factual disputes. First, he says that Mr James is a counterparty to the contract but is not an owner of the property, and he cannot, therefore, be a residential occupier. He says it is insufficient for one of two counterparties to be an owner of the property. I do not accept this. Mrs James is the owner of the property, and it is true that Mr James is not an owner of the property. However, it is not unusual for a family home to be in the name of either the husband or wife. In this case, Mrs James was the owner of the property, and she was a counterparty to the contract. Mr Frampton relies on Edenbooth in this respect, but in that case the defendant was a company, it was engaged in property development, and it was not the registered owner of the property. I do not see how this assists in determining whether Mr and/or Mrs James were residential occupiers in the sense of intending to occupy it as their residence.

Second, Mr Frampton submits that, on Mr and Mrs James’ own evidence, they did not objectively intend to occupy the property as a dwellinghouse on completion of the works. This is because they accept that they would not reside in the property until a development loan had been paid off, and so their intent was, therefore, conditional. The condition has not been met because the loan has not yet been paid off. He argues that a conditional intent is insufficient for section 106, which requires an unambiguous intent. I do not accept this. “Intent” is a common English word. It does not connote unconditionality. Just because a condition has to be fulfilled before an intention may be realised, that does not mean that the relevant person does not hold the requisite intention. It might just as well be said that their intention to reside in the property was conditional on the building works being completed.

Third, Mr Frampton submits that Mr and Mrs James intended to rent out the property Airbnb style during holiday periods and that this was necessary to repay the development loan. It is said that this would, in effect, be a holiday let run with a buy-to-let mortgage. As I have indicated, Mr James’ evidence is that the plan was to rent the property out for about 13 weeks a year. Mr Frampton says that a property rented out for 25% of the time under a holiday/buy-to-let mortgage is not principally a dwelling occupied as a residence. I do not accept this. First of all, I consider that this is a misapplication of the word “principally”, having regard to its location in section 106. The provision requires that the construction contract must principally relate to operations on a dwelling. But in any event, many owner-occupiers, particularly in areas popular with holidaymakers, let out their properties on an Airbnb basis for a few weeks a year. If the intention was to let this property during holiday periods, but Mr and Mrs James would otherwise live in the property and, moreover, they had no other home (which is their evidence here) I consider that they would intend to occupy it as their “residence” within the meaning of section 106. I consider that Coulson J’s comment that section 106 needs to be approached with commonsense is apposite here.

Fourth, Mr Frampton relies on the planning document which refers to the property as being for “market sale” as opposed to “self-build” or “custom-build”. He submits that this demonstrates that the property was at all times intended to be sold. Mr James says that the form was completed by a consultant but, in any event, the reference to “market sale” is simply a reference to housing that can be sold freely on the open market as opposed to other categories, which would have restrictions. He says that the “self-build/custom-build” category would come with restrictions usually involving infrastructure contribution concessions. This is a factual dispute which I cannot determine on the material available to me, but I am satisfied that Mr and Mrs James have a real prospect of success on this issue.

Fifth, Mr Frampton relies upon the development loan which enabled Mr and Mrs James to finance the development of the property. He says that the development loan terms are inconsistent with and preclude an intent to occupy the property as a residence. The loan is dated 10 November 2021, two months prior to the date of the contract. Here, it seems to me that Mr Frampton is on firmer ground. The loan was advanced by MSP Capital Ltd. The borrowers are identified as Mrs James and Cassek Ltd, which is a property development company of which Mr James was the director. The loan was for up to £3.7 million and was guaranteed by Mr James and his brother, Philip. Mr Frampton then relies, in particular, upon clause 2.1(3) which stated:

“The lender has received and is satisfied with the written undertaking signed by the borrower that the charged property is not used as and will not be used as a dwelling by the borrower or a related person of the borrower”.

Clause 2.1(4) stated:

“The lender has received and is satisfied with written undertakings signed by the borrower that the loan will be used for business purposes”.

The first undertaking signed by Mrs James stated:

“We declare, confirm and certify that neither myself, ourselves or any of my/our family or close relatives nor my/our partners reside nor have any intention to reside at the property”.

The second undertaking signed by her stated:

“I am entering this agreement wholly or predominantly for the purposes of a business carried on by me or intended to be carried on by me”.

The development loan has been refinanced three times, and the total amount of the loan is now £4.5 million, but the terms have not changed. Mr Frampton says that the James’ contention in these proceedings that they intended to occupy the property as their dwelling is directly contrary to the undertakings that Mrs James provided under the development loans, and these undertakings are fatal to their jurisdictional arguments. He relies in particular upon the fact that any occupation would have been in breach of the terms of the loan, and so he says this would have amounted to unlawful occupation, which cannot be occupation under section 106, relying upon the Howsons decision.

It is true that in Howsons HHJ Bird held that occupation or intended occupation in breach of planning conditions could not be relied upon as occupation for the purposes of section 106, but he also went on to hold that, even if the occupation was lawful, it would not be appropriate to describe the works in that case as principally relating to a dwelling because the related to a live/work unit. In my judgment, a loan agreement with a third-party financier is different in kind to a statutory regulation. Breach of planning conditions is unlawful and may be subject to a penalty. Breach of a loan agreement is a civil matter which may sound in damages for breach of contract.

However, even assuming that Mr and Mrs James are in breach of their declarations under the financing agreement, I do not see how the fact that there was such a breach or potentially the fact that they were untruthful in their dealings in relation to the loan agreement is determinative of their intention objectively ascertained. The declarations that they made in connection with the loan agreement are part of the picture and part of the evidence that may be taken into account in determining what their true intention was, but to my mind, it is not determinative; it is part of the picture. In this respect, I note that Mr and Mrs James both say that their understanding of the loan declaration was that they were declaring that they would not live in the property for the duration of the loan. Mr Frampton fairly points out that this is not what the declarations say, and he also says that no explanation is given for the second and third declarations confirming that the loan and thus the works were for a business purpose. However, it seems to me that these are essentially factual matters which would fall to be investigated if the jurisdiction point went to trial.

Finally, Mr Frampton points further to various documents which identified Mr James’ property company, Trilogy, as the client. He refers to a health and safety at work prohibition notice, a method statement prepared by the health and safety consultant and an updated F10 form filed with the health and safety executive notifying it of the construction project.

I do accept that the loan documents and the Trilogy documents, in particular, require explanation and very clearly raise the possibility that the house was being constructed as a development for onward sale but, in my judgment, this is part of the picture and has to be set against the James’ own evidence. They say that at the time of contracting, they intended to live there. There is some support for this in the evidence of Mr Plant, the facts that they registered with a local GP and went on the electoral roll. The screenshots, the facts that they lived on site and sold their house in Essex, and the evidence in relation to their personal specification is also material. This all goes to support the James’ case on their intention at the time of the contract. If accepted, it would be determinative of the section 106 point. I cannot decide which evidence to accept on a summary basis. This issue, as in Westfields, would have to be decided on the basis of oral evidence and not summarily.

Looking at the evidence overall I consider that the evidence relied upon by Mr and Mrs James enables them to surmount the Part 24 test. In light of the material which has been adduced and which is far more extensive than the material which was available to the adjudicator, I consider that they have a real prospect of establishing that the residential occupier exception in section 106 is engaged. In that event, it is common ground that the adjudicator would not have jurisdiction. It follows, therefore, that I decline to enforce the adjudicator’s decision, and I dismiss the application for summary judgment.