Section 106 “Intends to Occupy” Test and Contextual Validity of Payless Notices under the 1996 Act

1. Introduction

RBH Building Contractors Ltd v James & Anor [2026] EWCA Civ 511 is a Court of Appeal decision addressing two recurring points in UK construction adjudication: (i) the scope of the “residential occupier” exception in s.106 of the Housing Grants, Construction and Regeneration Act 1996 (the “1996 Act”), specifically where the employer intends to occupy a dwelling but never in fact does; and (ii) what a payless notice must contain to be valid under s.111(3)–(4).

The appellant contractor (RBH) sought to enforce an adjudicator’s award of about £663,000 arising from an oral, construction-management style arrangement for building a luxury home for the respondents (Mr and Mrs James). The respondents resisted enforcement on the basis that the adjudicator lacked jurisdiction because they were (or intended to be) residential occupiers under s.106, and separately sought a declaration that their 27 November 2024 letter was a valid payless notice.

The appeal therefore raised: (1) how courts should assess “intends to occupy” (including the effect of contradictory third-party finance documents); and (2) whether a payless notice must set out a detailed arithmetic calculation, or whether identifying disputed items and reasons can suffice when read with the payment application.

2. Summary of the Judgment

The Court of Appeal (Coulson LJ giving the leading judgment, with Males LJ and King LJ agreeing) dismissed RBH’s appeal on both grounds:

  • Residential occupier / jurisdiction: The judge below was entitled, on a CPR Part 24 summary judgment application, to find that Mr and Mrs James had a real prospect of establishing that the s.106 exception applied (i.e., that at the time of contracting they intended to occupy the dwelling as their residence). The Development Loan undertakings were not a “trump card” defeating other evidence of intention.
  • Payless notice: The 27 November 2024 letter was a valid payless notice. It specified the sum considered due (£0) and gave an adequate basis for that position through 11 bullet-pointed disputes, which could be understood by a reasonable recipient in the context of RBH’s payment application and spreadsheet.

Although the jurisdiction ruling rendered the payless issue academic to enforcement in this case, the Court addressed it because of its broader practical importance.

3. Analysis

3.1 Precedents Cited

A. Summary judgment and jurisdiction in adjudication enforcement

  • Estor Ltd v Multifit (UK) Ltd [2009] EWCH 2108: Cited for the approach that jurisdiction issues depending purely on law may be dealt with summarily, but fact-dependent jurisdiction challenges may not be suitable for summary disposal. This framed the TCC judge’s task: not to decide s.106 conclusively, but whether the defence had a real prospect of success.
  • National Insurance Company v Alliance Global Corporate and Speciality AG [2007] EWCA Civ 1066 and E.D.F. Mann Liquid Products v Patel [2003] EWCA Civ 472: Used to reinforce the Part 24 threshold and the caution against a “mini-trial”. The Court of Appeal’s treatment of s.106 is anchored in those procedural constraints.

B. Section 106 residential occupier exception

  • Samuel Thomas Construction Limited (2000) (unreported), Edenbooth Limited v Cr8 Developments Limited [2008] EWHC 570, Shaw v Massey Foundations Piling Limited [2009] EWHC 493 (TCC): Cited as examples of fact-specific first instance decisions on the margins of s.106, often involving non-genuine domestic scenarios.
  • Westfields Construction Limited v Lewis [2013] EWHC 376; [2013] 1 WLR 3377: Treated as the key prior authority dealing with “intends to occupy”. It provided three important strands adopted and developed here: (i) the relevant time is contract formation; (ii) evidence before and after formation can test the alleged intention; and (iii) s.106 should be approached with “commonsense”. The Court of Appeal also noted Westfields was determined on fuller evidence (including cross-examination), unlike the summary judgment posture here.
  • Howsons Limited v Redfearn & Anr [2019] EWHC 2540 (TCC); [2019] 186 ConLR 223: Central to RBH’s “unlawfulness” argument. The Court of Appeal confined Howsons to its planning-law context: occupation contrary to planning conditions (with public law and potential criminality) was materially different from a private contractual breach of a loan undertaking.

C. Analogous “intention to occupy” jurisprudence

  • Gregson & Anr v Cyril Lord Limited [1963] 1WLR 41 and Gatwick Park Services Limited v Sargeant [2000] 3 P.R. 25: Imported as persuasive analogies for analysing “intention to occupy” as containing two elements: (i) bona fide subjective intention; and (ii) an objective, realistic prospect of being able to bring it about. Gatwick Park was also cited for the point that the “intention” hurdle is not high—relevant when the court is deciding only whether the defence is realistically arguable.
  • Sutton LBC v Swann [1986] 18 HLR 140 and The Mayor and Burgesses of the London Borough of Islington v Boyle & Anr [2011] EWCA Civ 1450 (“Islington”): Used to articulate an objective approach to “home” and “return” concepts: intention must be practically possible within a reasonable time and supported by outward signs; the evaluation is objective and sensitive to “two homes” scenarios. The Court of Appeal used this framework to add temporal realism to s.106 “intends to occupy”.

D. Payless notices: construction, context, and sufficiency

  • Mannai Investment Co. Limited v Eagle Star Life Insurance Co. Limited [1999] AC 749: The foundational “reasonable recipient” and contextual construction approach. The Court applied this to payless notices: the question is how a reasonable recipient, with knowledge of the contract and the payer’s responding context, would understand the notice.
  • Thomas Vale Construction PLC v Brookside Syston Limited [2006] EWHC 3637 (TCC), Henia Investments Limited v Beck Interiors Limited [2015] BLR 704, Surrey and Sussex Healthcare NHS Trust v Logan construction (Southeast) [2017] BLKR 189, Muir Construction Ltd v Capital Residential Ltd [2017] CSOH 132, Grove Developments Limited v S&T (UK) Limited ("Grove") [2018] BLR 173, Advance JV v Aniska Limited [2022] EWHC 1152, S&T (UK) Limited v Grove Developments Limited ("S&T") [2019] BLR 1, Everwarm Ltd v BN Rendering Ltd [2019] EWHC 3060 (TCC): These cases collectively supplied the Court’s synthesized principles: objective reading; context matters; no “tick box” traps; sufficient specification of the sum and the basis; and the “agenda for adjudication” test. Muir (and the Everwarm obiter) illustrated invalidity where a notice gives a figure (e.g., zero) without enabling the basis to be worked out.

3.2 Legal Reasoning

A. Section 106: A structured test for “intends to occupy”

A notable contribution of this judgment is the Court’s explicit formulation of principles (at paragraph 52) for determining “intends to occupy” under s.106. In substance:

  1. Burden is on the party invoking the s.106 exception (as in Westfields).
  2. Fact-sensitive inquiry: may be summary if clear, but not if credible evidence exists both ways; adjudication enforcement does not create an enforcement presumption where jurisdiction is realistically arguable (drawing on Estor).
  3. Timing: intention assessed at contract formation, with before/after evidence used to test that intention (Westfields).
  4. Two elements (Gregson): (i) bona fide subjective intention; (ii) objective realistic (not fanciful) prospect of achieving it.
  5. Contemporaneous support: objective evidence can strengthen subjective intention.
  6. Lawful/practical possibility: Howsons is best seen as a case where there was no realistic prospect of lawful occupation, given planning constraints.
  7. Temporal realism: intention must be to occupy within a reasonable time after completion (influenced by Islington’s “practical possibility” and temporal aspect).

Applying these principles, the Court held the judge below was entitled to find a real prospect of establishing the exception, because the Jameses adduced substantial evidence of intention (sale of prior home, living on site, GP and electoral registration, bespoke personal design features, and supporting evidence from their architect).

B. Finance documents are evidence, not a legal veto

RBH’s primary submission was that Development Loan undertakings stating the borrowers had “no intention to reside” must conclusively defeat s.106 as a matter of law. The Court rejected this as both doctrinally unsupported and procedurally inappropriate on summary judgment: s.106 turns on fact, and nothing in the statute elevates third-party finance documentation into a dispositive rule overriding all other evidence.

Importantly, the Court also accepted that the borrowers’ explanation—using development finance as an interim step before refinancing with a consumer mortgage—was at least plausible, reinforcing that the issue could not be closed down summarily in RBH’s favour.

C. “Unlawfulness” limited to public law contexts such as planning

RBH’s reliance on Howsons failed because the Court drew a sharp line between: (i) occupation contrary to planning control (public policy, potential criminality, and the planning permission being a precondition for the works), and (ii) occupation contrary to a private loan covenant (a civil matter between borrower and lender, akin to being in arrears on a mortgage).

This confines any “lawfulness” requirement to contexts where the alleged occupation is unlawful in the public law sense, rather than merely a contractual breach vis-à-vis a third party.

D. Part-year letting does not necessarily negate “residence”

The Court endorsed the judge’s “commonsense” treatment of the AirBnB plan: letting a home for a minority of the year (here, about 25%) can be consistent with intending to occupy it as a residence under s.106, especially where the owner otherwise lives there and has no other home. The Court declined to draw a bright line, emphasizing fact-sensitivity (while suggesting that letting for more than half a year “may well” be different).

E. Payless notices: “tolerably clear” basis, read with the payment application

Under s.111(4), a payless notice must specify (a) the sum due (including zero), and (b) the basis of calculation. The Court rejected RBH’s attempt to impose an additional requirement that the notice must include a full arithmetical reconciliation.

The Court’s reasoning is strongly contextual:

  • RBH’s “payment notice” was essentially a large invoice list with limited explanation and a net sum apparently not previously invoiced—described as “a poor presentation” of what was, in substance, a final account claim.
  • The payless letter clearly stated the payer’s position: payment of £0, withholding the full notified sum, and gave 11 disputes tied to the spreadsheet line items.
  • It was legitimate to read the bullet points by reference to RBH’s own underlying detail; the payer was responding under tight Scheme timescales, and the payee is assumed to know its own application.
  • The disputed items total exceeding the notified sum did not create a “mismatch” invalidating the notice; it simply explained why nothing was payable without requiring a counterclaim to be articulated.

The Court also treated the older phrase “withholding notice” as irrelevant to validity: labels do not control; substance does (consistent with Surrey and Sussex).

3.3 Impact

A. Clear appellate guidance on s.106 “intends to occupy”

This is significant because the judgment acknowledges that there had been no reported case where s.106 had been held to apply, and because earlier authorities were first instance and fact-bound. The Court of Appeal now supplies a structured framework likely to be cited in:

  • adjudication enforcement where homeowners resist jurisdiction;
  • cases involving mixed motives (residential use plus short-term letting);
  • situations where finance or tax structuring documents appear inconsistent with occupation claims.

B. Evidence strategy in enforcement proceedings

The decision underscores that s.106 disputes can defeat summary enforcement where there is credible evidence. Contractors can expect greater forensic focus on contemporaneous “intention” indicators (residence arrangements, registrations, design choices, communications) rather than relying on a single class of documents.

C. Payless notices: practical sufficiency over formalism

For payment practice, the judgment strengthens a pragmatic standard: where a payless notice (i) states the sum due (even zero) and (ii) identifies disputed components and reasons in a way that sets an agenda for adjudication when read with the payment application, it will likely be upheld—even absent a full calculation schedule.

Conversely, the Court’s criticism of RBH’s payment application signals that poorly-particularised “smash and grab” presentations may attract judicial scepticism when later complaining that a responsive payless notice lacked detail.

4. Complex Concepts Simplified

  • Residential occupier exception (s.106): If a construction contract mainly relates to work on a dwelling that an employer occupies or intends to occupy as their home, the adjudication/payment regime in Part II of the 1996 Act does not apply. That can remove an adjudicator’s jurisdiction entirely.
  • “Intends to occupy” (two-limb test): The employer must (1) genuinely mean to live there (subjective bona fide intention), and (2) have a realistic practical possibility of doing so within a reasonable time after completion (objective feasibility).
  • Summary judgment (CPR Part 24): The court does not decide the whole dispute; it asks whether the resisting party has a “real prospect” of success. If a jurisdiction defence has real prospects on the evidence, adjudication enforcement can be refused.
  • Payment notice vs payless notice: A payment notice (or application treated as one) states what the payee says is due. A payless notice is the payer’s timely response stating a lower amount (including zero) and the basis for paying less.
  • “Reasonable recipient” test: Notices are interpreted as a reasonable reader, aware of the contractual and factual context, would understand them—not by technical nit-picking.
  • “Adequate agenda for adjudication”: A notice is usually sufficient if it identifies the issues that would be argued in any adjudication about value—i.e., what is disputed and why.

5. Conclusion

The Court of Appeal’s decision makes two lasting contributions:

  1. It provides a structured, appellate-level framework for assessing s.106 “intends to occupy”, including the crucial distinction between subjective intention and objective feasibility, and it rejects the notion that third-party finance undertakings automatically defeat the exception.
  2. It confirms a commonsense, contextual approach to payless notices: stating £0 and identifying disputed items and reasons can satisfy s.111(4) without a full arithmetical breakdown, particularly where the payer is responding to an unwieldy application and the disputes plainly define the adjudication agenda.

Overall, the judgment promotes substance over form in payment disputes, while ensuring that adjudication’s statutory machinery is not imposed where Parliament intended householders—who genuinely intend to make a dwelling their home—to be outside that regime.