No second chances: Strict rules on Pay Less Notices

In Vision Construct Limited and Gypcraft Drylining Contractors Limited [2025] EWHC 2707 (TCC), the Court has again made it clear that strict compliance with Payment Notice requirements is not optional and that if a Pay Less Notice is served late, or in the wrong form, it will not save a payer from having to pay the notified sum.

Facts of the case

Gypcraft submitted Interim Payment Application No.23 ("Afp23") seeking payment of approximately £340,000. VCL responded with a document entitled 'Payment Notice' starting that the sum due was around £125,000 and paid that amount.  However, the notice was issued five days late and VCL did not serve a separate Pay Less Notice.

Gypcraft referred the matter to adjudication, claiming the outstanding balance as a notified sum. The Adjudicator agreed, finding VCL's purported Payment Notice was invalid and awarding Gypcraft the remaining sum.

Within subsequent Part 8 proceedings, VCL sought to argue that its purported Payment Notice was in fact a Pay Less Notice, this was despite:

1. The document being marked 'Payment Notice';
2. VCL stating in the notice that "the basis on which the sum stated in this Payment Notice has been calculated is set out in the attached breakdown"; and
3. VCL referenced "PN23" and "Payment Notice" within its covering email when sending the document.

Not surprisingly, the Court rejected VCL's arguments and held that the document was what it said it was: a Payment Notice.

The Judge did not agree with VCL's arguments and stated that it would "entirely undermine the Act and the Sub-Contract if what the parties clearly intended at the time to be a Payment Notice could somehow retrospectively be converted into a Pay Less Notice."

The statutory framework

The Housing Grants, Construction and Regeneration Act 1996 ("the Construction Act") establishes a tightly regulated payment regime. When a contractor submits a valid Application for Payment and no Payment Notice is issued, that application will become the notified sum. At that point, the payer's only real option is to issue a Pay Less Notice which must:

• Be served no later than the prescribed deadline;
• Specify the sum that the payer considers due; and
• Set out the basis on which that sum is calculated.

The Courts have repeatedly confirmed that for a document to stand as a valid Pay Less Notice it must be intended to operate as a Pay Less Notice, be served in time (even if served even one day late it will be ineffective) and contain the information required by the statutory regime.

While Courts and adjudicators will often look at substance, rather than if a document is titled 'Pay Less Notice', they will not treat a document as a Pay Less Notice where it was never intended to operate as one.

Conclusion

The payment notice rules under the Construction Act leave almost no room for error. Whether acting as an employer or contractor, parties must treat notice requirements as matters of strict compliance—not mere formalities. Missed deadlines or attempts to correct the position after the event will rarely succeed.

For contractors, the regime protects cash flow, but only where applications are properly served. For employers, failure to follow payment procedures and issue notices on time creates significant risk.

The message from the Courts is clear – get the procedure right!

Need advice?

Our specialist construction disputes and dispute avoidance team can assist with Payment Notices, Pay Less Notices, and related disputes. For more information, please contact Dickon Court, Lee Ward, or Chloe Wood.