English Court of Appeal clarifies requirements for valid pay less notices

The Court of Appeal in RBH Building Contractors Limited v James [2026] has handed down a judgment of significant importance on the proper form and content of a payless notice under sections 111(3) and 111(4) of the Housing Grants, Construction and Regeneration Act 1996. 

Delivered by Lord Justice Coulson (with Lady Justice King and Lord Justice Males), it is the most comprehensive appellate synthesis of the law on payless notices to date, sending a clear message that such notices must not become "a technical battleground" exploited through tight statutory time periods.

Payment application 

RBH Building Contractors Limited was engaged by Mr and Mrs James to provide site and project management services for the construction of a large luxury house at Ferndown, Saunton, North Devon.

On 18 November 2024, RBH served a payment application of £633,016.16, attaching a spreadsheet of 527 line items totalling £1,973,055.20 and asserting that, after deducting £1,310,039.04 already paid, a net balance of £663,016.16 remained due.

Pay less notice

On 27 November 2024, Mr and Mrs James responded with a letter headed "Notice of intention to withhold payment in respect of an Application for Payment dated 18 November 2024". It stated an intention to withhold the entirety of the sum claimed and to make payment of £0, supported by 11 bullet points identifying disputed items.

Eleven disputed items

Adjudication and court proceedings

RBH served a notice of adjudication on 6 December 2024. The adjudicator found the letter of 27 November was not a valid payless notice and ordered Mr and Mrs James to pay £663,016.16, together with interest and his fees. When they did not pay, RBH sought summary judgment in the Technology and Construction Court; Mr and Mrs James counterclaimed for a declaration that their letter was a valid payless notice. The deputy High Court judge (Neil Moody KC) found for Mr and Mrs James on both issues. RBH appealed.

The residential occupier point

The appeal also raised the section 106 residential occupier exception, which disapplies the adjudication regime to contracts relating to a dwelling that a party occupies, or intends to occupy, as their residence. The Court of Appeal upheld the first-instance finding that Mr and Mrs James had a realistic intention to occupy on completion, with Lord Justice Coulson articulating, for the first time at appellate level, seven principles for determining whether the "intends to occupy" limb is engaged. Whilst that finding rendered the payless notice issue academic, the court addressed it given its wider importance.

Legal framework

Section 111(3) of the Housing Grants, Construction and Regeneration Act 1996 permits the payer to give notice of an intention to pay less than the notified sum. Section 111(4) requires the notice to specify: the sum the payer considers due on the date of service and the basis on which that sum is calculated – expressly including where that sum is zero.

Six governing principles

Lord Justice Coulson synthesised the authorities into six governing principles.

• The reasonable recipient test. The question is how a reasonable recipient would have understood the notice, not how the actual recipient understood it.
• Construction in context. The notice must be construed in context; the reasonable recipient is taken to know the terms of their own payment notice, to which the payless notice responds.
• Clarity on sum and basis, but no more. The notice must clearly state the sum due (even if £0) and the basis for it. Beyond that, it is a question of fact and degree; the court will be "unimpressed by textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis."
• No need for a particular title or statutory cross-reference. The question is whether, viewed objectively, the notice fulfilled the requisite function.
• The adjudication agenda test. A useful test is whether the notice provides an adequate agenda for an adjudication on the true value of the works. A notice identifying only a figure, with no basis for it, will not suffice.
• Common sense, not technicality. The simple question is: does the payless notice explain, in a tolerably clear way, what (if any) part of the payment notice is said to be due, and why less is being paid?

Why the notice was valid

The quality of the payment application matters

RBH's application was, in the court's view, unsatisfactory: effectively a list of vague invoices requiring the recipient to do all the work in identifying what was due. The net sum of £663,000 had apparently never previously been invoiced and was not separately explained. The payless notice had to be considered against that background.

Substance over form

The letter expressly stated an intention to withhold the entirety of the sum claimed and to pay £0. Titles and statutory references are irrelevant; it is all about substance.

Eleven bullet points were sufficient

Five of the eleven items explained why nothing was due under each head totalling £349,590.84, over half the net sum claimed. The remaining six stated that insufficient evidence had been provided to identify any sum due.

Contractor's own notice

A contractor cannot complain about the adequacy of a response to its own inadequate notice. Addressing the 11 items required drilling into RBH's own spreadsheet. The court found that it was wrong in principle for RBH to complain about that, given the sketchy nature of its own payment notice. RBH had months to prepare what was effectively a final account claim and must be taken to know every line item.

The 'smash and grab' label

RBH's application arrived without warning, giving Mr and Mrs James just over a fortnight to respond to a final account claim for over £663,000 that had never previously been invoiced. The court characterised this as a "smash and grab" claim, made in the hope that no proper payless notice would be forthcoming in the short time allowed.

Mismatch argument rejected

The total of the disputed items was approximately £1.2 million — the maximum extent of the dispute between the parties — which explained why none of the £663,000 claimed was said to be due. It was not necessary to go further and counterclaim any balance.

A final warning 

It is very important that payment notices and payless notices do not become a technical battleground used to recover (or withhold) sums that could not be justified on a detailed analysis. The court considered that was precisely what RBH had been endeavouring to do.

What this means in practice

For employers

A payless notice does not need a particular title, statutory cross-references or arithmetic reconciliation. What matters is whether a reasonable recipient would understand that payment is being withheld and why.

The quality of the payment notice sets the bar for the response. A vague payment notice cannot demand a highly particularised payless notice. Broad reasons such as "insufficient evidence has been provided" may be sufficient, particularly where the employer has limited visibility of the contractor's sub-contract costs.

A tight response window does not preclude validity, but forms part of the relevant context.

For contractors

A "smash and grab" approach carries real risk if the employer serves even a broadly substantive payless notice in response.

The courts will scrutinise the adequacy of the payment notice, the prior invoicing history, and the overall conduct of both parties when assessing notice validity.

Osborne Clarke comment

This is the clearest appellate statement yet on payless notice law. Lord Justice Coulson's six-principle synthesis will be the natural starting point for future disputes, and the condemnation of "smash and grab" tactics signals that courts will be alert to exploitation of the payment notice regime.

That said, employers would be unwise to take undue comfort. A payless notice that gives the reasonable recipient no basis on which to understand how a zero sum has been calculated will still be invalid. Best practice remains to engage as specifically as possible with the individual items in the payment notice, cross-referencing by name and value where the payment notice permits.

The judgment also raises a question over whether the 11 bullet points would have carried the same weight had RBH's payment application been presented in a clearer and more transparent way. The Court of Appeal was explicit that the payless notice had to be assessed against the background of the payment application – and the payment application here was, by any measure, an unusually poor document. 

Several of the bullet points did no more than say that "insufficient evidence has been presented" in respect of individual sub-contractor claims. Against a well-particularised payment application, that response might well have been found wanting. The judgment therefore carries an implicit message: the more clearly and thoroughly a payment application is presented, the higher the bar it sets for a valid payless notice in response.

Employers and their advisers should be cautious about assuming that the approach taken by Mr and Mrs James here would succeed in all circumstances and should continue to aim for the most detailed and specific response that time and available information permit.