Substantially Complete Episode

The Real Estate Espresso Podcast

Substantially Complete Episode

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Substantially Complete Episode: Completing a Real Estate Project

Welcome to another episode of the Real Estate Espresso Podcast, I’m your host, Victor Menasce. In this Substantially Complete Episode, we would be discussing two simple, yet significant words in the world of real estate investing – Substantial Completion. These terms may seem insignificant but bear profound financial implications on your projects. Let’s break it down:

Understanding Substantial Completion

Substantial Completion, according to the American Institute of Architects, is defined as the stage of progress when the work or a designated portion thereof is complete enough following the contract documents, enabling the owner to use or occupy the work for its intended purpose. In simpler words, it is when the major requirements, as stipulated in the contract, have been met. It requires adherence to relevant building codes and regulations. Substantial Completion typically ushers in a transition phase where ownership is transferred to the owner despite some minor tasks that may still be pending. This period kickstarts the implementation of warranty terms and correction of any work.

The Need for Final Completion

Following Substantial Completion, the next vital stage is Final Completion. This stage signifies the ultimate completion of a construction project, meaning all tasks, major and minor, are finished in accordance with the contract documents. This stage entails the rectification of all outstanding issues, including deficiencies, punch list items, or any outstanding obligations. The Final Completion stage triggers vital contractual obligations and the release of any remaining retainage.

Substantial Completion	Final Completion
Denotes a stage in a project wherein it is sufficiently complete for its intended use. The owner can start to occupy the place.	Signifies that all work, both major and minor, are complete. All punch list items, deficiencies, and outstanding obligations are addressed and resolved.

The key difference between Substantial and Final Completion lies in the degree of completion and the related obligations. Be careful when defining Substantial Completion in your loan documents and construction contract; consistency is critical to avoid potential problems.

Please remember that these descriptions are just sensitizing you to these terms and I am not providing legal advice. I strongly recommend enlisting an experienced construction contract attorney to guide you before signing any contract. Especially focus on understanding these terms: Substantial and Final Completion.

With that said, I am declaring this Substantially Complete Episode as complete. Thank you for reading today’s blog. Stay tuned for more insights!

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