The Court of Appeal’s judgment in RBH Building Contractors Ltd v James & Anor [2026] EWCA Civ 511 serves as a definitive clarification of the statutory boundaries within the Construction Act. This decision is of paramount strategic importance to practitioners, as it reaffirms the protections afforded to non-professional employers through the Section 106 “residential occupier” exception and the common-sense threshold for the validity of “payless notices” under Section 111.

Background to Dispute

The dispute originated from an oral agreement made in January 2022 for the construction of a luxury residence in Saunton, Devon. By April 2024, the relationship collapsed with the works incomplete and RBH subsequently served a payment application for £663,016.16.

RBH sought to enforce the debt via adjudication, arguing that the employers, Mr. and Mrs. James, failed to serve a valid payless notice within the 17-day window prescribed by the Scheme for Construction Contracts. While the adjudicator initially found for the contractor, the High Court refused summary judgment, questioning the adjudicator’s jurisdiction and the notice’s validity.

The Residential Occupier Exception

Section 106 was specifically enacted to protect ordinary householders from the swift and occasionally arbitrary nature of construction adjudication. Parliament intended to exclude domestic employers, who often lack the professional resources of commercial contractors, from the rigors of the Act. Under s.106(2), the Act does not apply to a contract that principally relates to operations on a dwelling which one of the parties occupies or intends to occupy as its residence. LJ Coulson identified the following principles in determining whether a person “intends to occupy” the property as their residence for the purposes of s.106 of the 1996 Act:

RBH contended that the terms of the Jameses’ Development Loan constituted a “trump card”, that the loan agreement and accompanying undertakings explicitly stated the property was for “business purposes” and would not be used as a dwelling. The Court of Appeal ruled that financing documents do not automatically override evidentiary reality and balanced the business-purpose declarations against compelling subjective and objective markers: the Jameses resided in a caravan on-site during construction; registered with a local GP and the electoral register; bespoke design elements, including a specific lap pool; and the sale of their home.

RBH also relied on Howsons Limited v Redfearn & Anr [2019] EWHC 2540 (TCC) to argue that the Jameses’ intended occupation was unlawful because it breached their loan covenants. 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. However, LJ Coulson said those considerations did not arise here and reaffirmed a critical boundary: a breach of a private contract (the loan) does not equate to a breach of public law (planning conditions) or a criminal offense.

Finally, the Court addressed whether an intention to rent the property “AirBnB style” for approximately 25% of the year disqualified the residential status. The Court clarified that many owner-occupiers let their homes for portions of the year and such an arrangement does not prevent a property from being “principally” a residence, provided the owners have no other home and occupy it for the majority of the time.

Payless Notice Validity

In assessing the validity of payless notices under Section 111, the Court emphasized a “common-sense” approach designed to prevent the process from becoming a technical battleground. The Court then reviewed the authorities and synthesized six key principles:

In terms of these 6 principles set-out by Coulson LJ, it might be said that the first incorporates all. That is to say that a reasonable recipient is aware of the surrounding law on substance, form, intent, context, suitable agenda, etc.

In summary, Coulson LJ said there are two simple questions which require answering in relation the contents of the notices and rejected everything else as “lawyerly over-complication”: “Does the payment notice explain in a tolerably clear way what is due and why? Does the payless notice explain, also in a tolerably clear way, what (if any) part of the payment notice is said to be due, and why less is being paid than has been sought?”

Here, the Court focussed on the reasonable recipient point and first noted the poor quality of RBH’s Payment Notice, which although not under the spotlight, the Court surmised on its validity: “it barely limped over the threshold”. The Court stated that a contractor who submits an application requiring the recipient to “do all the work” to identify what is claimed cannot complain if the response is equally broad.

Importantly, the Court said the issue was whether a reasonable recipient would have understood the RBH letter as a PLN and found in the affirmative: “The fact that the reasonable recipient would have to know the detail of its own claim, as set out in the payment notice, in order to understand the detail of the response, is simply part of the context of this particular payless notice.”

Finally, and somewhat surprisingly in respect of the current sentiment against the terminology, the Court referred damningly to RBH’s Notice as a “smash and grab claim”. The Court said that the content of the PLN needs be considered against that background too.

Distinct Standards of the 3 Notices

The Court may have clarified its position on the three types of payment notice, best referred to as: (i) a payee’s payment notice; (ii) a payer’s payment notice; and (iii) a payer’s payless notice.

Here, Coulson LJ sets out the fourth principle as: “…whilst there is no principled reason for adopting a different approach to the construction of different kinds of payment notices merely because some may give rise to more draconian consequences than others, ‘the particularly adverse consequents for an employer, that follow from, say, a contractor’s unanswered application/payment notice are relevant to the test of the reasonable recipient’ (Grove)”. In Grove, he stated: “…I do not consider that the courts should generally adopt a different approach to the construction of the two different kinds of notices: that would be potentially contrary to Mannai. That said, the particularly adverse consequences for an employer that follow from, say, a contractor’s unanswered application/payment notice are relevant to the test of the reasonable recipient: would that recipient have realised that the document in question was an application or payment notice, with contractual force, and with all the consequences that that may entail?”

From the above principle and reviewing the findings in this Judgment, it appears that the Court of Appeal is suggesting that the test of the reasonable recipient is context dependent and that the reasonable recipient of a payer’s notice has knowledge of any payee’s notice and therefore, in that respect, the substance of such payer’s notice would be held to a lower threshold (it is of note that a similar finding was recently found in Laing O’Rourke Delivery Limited v Shepperton Studios Limited [2026] EWHC 612 (TCC)). By inference, if not expressly from Coulson’s two ‘simple questions’ above, the threshold of any payer’s payment notice would sit somewhere in between.

Conclusion

This chapter in the annals of adjudication history helpfully clarifies a few points of law surrounding the residential occupier exclusion and the payless notice requirements. Most importantly, this is an advert of the perils of pursuing a contentious notified sum – particularly with the final payment notice, where the Courts are likely to be less sympathetic.