Payment Under Construction Contracts - Payment And Pay Less Notices Subject To Further Judicial Consideration

Nearly 30 years on from the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the "1996 Act"), the Technology and Construction Court (TCC) continues to face questions concerning the validity, or otherwise, of Payment Notices and Pay Less Notices. In two recent judgments, the TCC has revisited, and reiterated, the core requirements for valid Payment Notices and Pay Less Notices under the 1996 Act and standard form contracts.

Two recent decisions - Vision Construct Ltd v Gypcraft Drylining Contractors Ltd [2025] EWHC 2707 (TCC) (Vision) and RBH Building Contractors Ltd v Ashley James & Anor [2025] EWHC 2005(TCC) (RBH) - provide timely reminders on substance, form and timing, and the consequences of getting these wrong. For both payers and payees, the message is clear: strict compliance with the contractual and statutory payment regime remains essential, but the courts will apply a common-sense approach when interpreting notices.

Vision v Gypcraft: one notice cannot be "repurposed" as the other

In Vision, the court dismissed a Part 8 application brought by the payer, Vision Construct Ltd (VCL).

VCL had challenged an adjudicator's decision that it had failed to serve either a valid Payment Notice or Pay Less Notice in time, and that the contractor, Gypcraft's interim application had therefore crystallised into the notified sum.

Three points from the decision are particularly important:

1. The court confirmed the effectiveness of a payment schedule attached to the sub-contract in identifying key payment dates, despite minor inconsistencies in terminology. It adopted a practical, common-sense construction, rejecting VCL's arguments that the Scheme for Construction Contracts should apply to fix the relevant valuation periods instead.
2. An estoppel-by-convention defence failed as there was no clear, shared assumption that out-of-time Payment Notices would be accepted, no evidence of reliance by VCL on the alleged convention, and no unconscionability in the payee holding the payer to the contract's payment regime.
3. Finally, the court held that it would entirely undermine the 1996 Act and the sub-contract if a late (and thus invalid) Payment Notice could "somehow retrospectively be converted into a Pay Less Notice". Each notice must clearly state its function and meet statutory and contractual requirements independently; one cannot serve as both. While a payer is not obliged to serve both a Payment Notice and a Pay Less Notice in a cycle, if it wishes to serve either, it must serve the correct notice within the correct window and in the prescribed function.

The practical message is clear: an untimely notice cannot be salvaged by re-labelling it.

Parties intending to serve both payment and Pay Less Notices must do so expressly, ensuring each document independently satisfies the statute and contract.

RBH v Ashley James: what a notice must contain

In RBH – which is a rare example of the residential occupier exception in section 106 of the 1996 Act being successfully used to challenge the enforcement of an adjudicator's decision - the TCC also considered the content requirements for Payment Notices and Pay Less Notices.

Two aspects are noteworthy for day-to-day administration.

1. The court reiterated the relevant law relating to the required content of payment and Pay Less Notices under the 1996 Act as set out by Joanna Smith J in Advance JV v Aniska Limited [2022]. This confirmed that a valid notice must objectively:
   • comply with the statutory (and contractual) requirements as to substance and form;
   • make plain that it is a Payment Notice or a Pay Less Notice; and
   • clearly set out the sum considered due at the relevant date and the basis on which that sum is calculated.

   The emphasis is on substance rather than style. The key question is whether a reasonable recipient, with knowledge of the contractual context and previous applications, would understand the sum assessed and how it has been derived.

2. Importantly, the court confirmed a Pay Less Notice must explain the basis of the valuation sufficiently; but need not set out an "arithmetical calculation" to be valid. A concise narrative or a summary schedule can suffice if it enables the recipient to understand the payer's position and the reasons for any deduction from the notified sum.

Key takeaways and practical implications for payers and payees

You cannot retrospectively recharacterise a late or invalid Payment Notice as a Pay Less Notice: each notice must be timely, and "has to make plain that it is ... a Payment Notice or a Pay Less Notice". Where both notices may be required in the same cycle, they should be drafted and served as distinct documents and must each meet its own statutory (and contractual) criteria.

The content test is pragmatic: payers should ensure that any notice discloses enough information for a reasonable recipient to understand the assessed sum and its basis; however, it does not require a full arithmetical breakdown.

Payment schedules and agreed timetables will be enforced according to their commercial intent: minor variations in terminology will not defeat an otherwise workable regime.

From an administrative perspective, both parties should:

• align their processes to the contractual payment schedule;
• diarise all deadlines; and
• use clear, consistent labelling for each notice.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.