substantial completion

USA

As used in project finance, occurs after mechanical completion has occurred when the project satisfies certain performance requirements (for example, the project can produce the required output or perform the required service at a certain minimum level). This is the most important of the three completion targets typically set out in a construction contract because once a project is deemed substantially complete, the owner of the project can usually take possession of the project and begin commercial operations. The other completion target is final completion. Failure to achieve substantial completion by a specified date typically results in the payment of liquidated damages (see Practice Note, Understanding Project Finance Construction Contracts (www.practicallaw.com/1-422-1870)).

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final completion

mechanical completion

punch list

+ Substantial Completion

USA

In a leasing context, a term generally used to define the completion of the construction obligations relating to tenant improvements in the leased premises. For example, tenant improvements are usually deemed substantially complete when:

• Completed in accordance with plans and specifications previously approved by the landlord and tenant.

• Completed in compliance with all applicable laws.

• Reviewed and approved by any local regulating authorities that have issued permits for the construction of the tenant improvements.

The definition of substantial completion can vary because it is usually negotiated by the landlord and tenant. The definition is especially important if substantial completion of the tenant improvements is a condition to the commencement of the lease term.