In the construction sector, it is not uncommon for work to be completed and the project to be in actual use, yet the contractor still has not received payment. The reason is that the client delays or refuses to sign the work acceptance and transfer certificate, thereby delaying final payment.
However, does such conduct mean that the contractor is left without legal protection? Lithuanian law provides a mechanism to protect a contractor who has fulfilled its obligations in good faith—the unilateral work acceptance and transfer certificate.
“A unilateral work acceptance and transfer certificate is not an exception or a loophole. It is a legal instrument designed to protect the contractor in cases where the client unreasonably delays acceptance of the work or payment. However, it may only be used in strict compliance with the requirements of the law,” notes Augustas Platūkis, a lawyer at AVOCAD.
Why is the work acceptance and transfer certificate so important?
In construction contracting relationships, the work acceptance and transfer certificate is one of the most important documents. It is this document that confirms that the contractor has delivered the results of the work and that the client has accepted them.
From this point on, significant legal consequences arise—the client is obligated to pay for the work performed, the warranty period begins, responsibility for the results of the work is transferred, and other rights and obligations provided for in the contract and by law come into effect.
Typically, such a document is signed by both parties. However, in practice, there are often situations where the client deliberately avoids accepting the work and thereby delays payment to the contractor.
How do clients delay the acceptance of work?
In practice, such situations take various forms. For example, a client:
- ignores the work acceptance and transfer certificates sent by the contractor;
- points out alleged or minor defects in the work;
- claims that not all of the work specified in the contract has been completed;
- begins to voice complaints—which had never been raised before—regarding the organization of work or safety violations;
- refuses to sign the document on the grounds that the letters of guarantee, insurance documents, or other formal documents have not yet been submitted.
In such situations, a paradoxical situation usually arises—the work has in fact been completed, but due to the client’s actions, the contractor is unable to receive the compensation to which it is entitled.
For example, according to the lawyer, the engineering systems installed in the business center are already operational, and the building’s employees use them every day; however, the client has not signed the work acceptance and transfer certificate for several weeks or even months, citing ever-changing formalities as the reason. In such cases, it is important for the contractor to know that the law provides a means to protect their right to payment.
Unilateral Work Acceptance and Transfer Certificate – Legal Protection Granted to the Contractor
The legislature has established a mechanism that protects the contractor from unfair actions by the client. However, an AVOCAD attorney warns that one must exercise one’s rights prudently and proportionately. In a case heard by the Supreme Court of Lithuania, it was determined that the work performed by the contractor had quality defects, which did not relieve the client of the obligation to accept the completed work under Article 6.694(6) of the Civil Code, as the defects could have been remedied and the client used the work for its intended purpose. On the other hand, the contractor did not exercise its right to sign the acceptance certificate unilaterally and, having assessed the client’s conduct as a material breach of contract, unilaterally terminated the contract and dismantled the work product.
The Court of Cassation recognized that, in the case at hand, the contractor failed to receive payment for the work performed not only because of the client but also because of its own actions; therefore, it ruled that the termination of the contract was unlawful.
According to Augustas Platūkis, if one of the parties refuses to sign the work acceptance and transfer certificate, a note regarding the refusal is made on the certificate, and the other party signs it. This results in a unilateral work acceptance and transfer certificate.
In practice, there is still a view that such an act has no legal significance, but this is not true.
Does a unilateral act have legal effect? “The short answer is yes. Consistent case law recognizes that a unilateral work acceptance and transfer certificate that has been properly prepared and submitted to the client acquires the same legal force as a certificate signed by both parties. It remains valid until a court declares it invalid,” he says.
This means that, pending a court decision, the party that has not signed the document is subject to all the legal consequences that would have arisen had it signed the document. Therefore, if the client fails to pay for work transferred by a unilateral act, the contractor has the right to file a lawsuit and seek a judgment for the debt arising from the work performed. Properly completing the unilateral handover procedure significantly increases the contractor’s chances of successfully enforcing its right to payment.
“Case law is consistent—a properly drafted unilateral work acceptance and transfer certificate has the same legal force as a document signed by both parties. Therefore, both contractors and clients should understand that refusing to sign the certificate does not, in and of itself, negate its legal consequences,” says Augustas Platūkis, a lawyer at AVOCAD.
When can a unilateral act be signed?
It is important for the contractor to understand that a unilateral act is not a means of circumventing the standard work acceptance and handover procedure. This tool may be used only in accordance with the requirements established by law.
First, the contractor must properly notify the client that the work has been completed and that the contractor is ready to hand over the results.
There are two possible scenarios:
- the client ignores the contractor's notice and fails to appear to accept the work;
- The client refuses to sign the work acceptance and transfer certificate without providing a valid reason.
In both cases, the contractor may be entitled to draw up a unilateral statement, but only if the client’s refusal is not based on grounds provided for by law.
When does the client have the right to refuse to accept the work?
The law provides an exhaustive list of cases in which a client’s refusal to accept the work is considered legitimate:
- the contractor missed the deadline for completion of the work, and as a result, the work became meaningless to the client;
- the results of the mandatory tests or control measurements are negative;
- defects in the work have been identified that cannot be remedied and that prevent the building or other result of the work from being used for its intended purpose;
- It is clear that the work has not been completed.
If the client’s refusal does not fall under any of the cases provided for by law, but the client still refuses to sign the document, the contractor has the right to sign it unilaterally and clearly note that the client refused to sign it.
Can a unilateral act be revoked?
According to the lawyer, the law ensures a balance between the interests of both parties. “If the client believes that a unilateral act was drawn up without justification, they have the right to go to court and request that such an act be declared invalid. However, it is important to note that it is the client who bears the burden of filing a lawsuit to challenge such a document,”
Thus, a unilateral work acceptance and transfer certificate is not a privilege of the contractor or a means of circumventing the client’s rights. It is a mechanism provided for by law, designed to ensure the fair performance of the contract and to protect the contractor from unjustified refusal to accept the work and artificial delays in payment.