Top legal tips for Standstill Agreements
The popularity of standstill agreements is showing no signs of abating – especially in the post-Grenfell, Building Safety Act 2022 era, after that Act implemented an unprecedented extension to limitation by extending the time for bringing claims under section 1 of the Defective Premises Act 1972 from six to 30 years retrospectively.
Increasingly, design and build contractors are receiving preliminary notices of defects and claims from developers or building owners in relation to construction projects that had been on the cusp of the expiry of the limitation period (which is commonly 12 to 15 years but could be significantly shorter).
This requires the design and build contractor to urgently review the contracts and appointments of its design team, who are further down the contractual chain, and potentially request a standstill agreement in order to preserve its rights to pursue those parties later. And those parties often agree to this request, as the alternative would be for the contractor to issue proceedings against them to stop the time to bring a claim from running out.
What is a standstill agreement and what does it say?
In a nutshell, a standstill agreement is a written contract in which the parties agree that the claimant (the contractor in our example above) can have additional time in which to issue proceedings (either in court or by way of arbitration for example), if the claimant ultimately decides to do so.
The standstill agreement usually operates to either extend the amount of time a claimant has or, more commonly, suspend time running (ie stops the clock) for an agreed period defined within the agreement (with periods of six to twelve months commonly agreed).
The terms of the standstill agreement should define the issue or dispute in relation to which time is to stop running for limitation purposes, the period for which time is suspended (or, less commonly, the date to which time is extended), and the mechanism by which the standstill will be brought to an end.
Failure to do so could result in a “self-inflicted complication” (using the words of Mr Justice Coulson, as he then was, in Russell v Stone and others), resulting in unhelpful satellite litigation about the terms of the standstill agreement.
Points to bear in mind for your standstill agreement
While standstill agreements generally follow a standard format, they do still require bespoke drafting, and there are different considerations depending on whether you are the claimant or defendant.
Some common but essential points to remember when drafting and negotiating are:
- The parties: make sure the right organisations are party to the agreement. It sounds like a simple one, but bear in mind that the parties to the agreement are not necessarily the same as the parties under (or involved with) the original contract – for example a company may have changed name or been taken over. If a parent company of a defendant gave a parent company guarantee, consider whether they should also be a party to the standstill agreement, in order that any potential claim under the guarantee is also preserved.
- The dispute and what is being preserved: explain the precise scope of the standstill agreement, either by reference to a class of defects (eg all fire safety defects at a site or in a building) or, if you are the claimant, it may be possible to obtain a standstill in relation to any and all issues and defects arising out of a defendant’s works or contract. Generally though, you will find that the party bringing the (potential) claim will want a wide catch-all definition as it preserves limitation across the project (including other potential latent defects), whereas the party defending the claim will want a narrow definition of the dispute in order to provide additional time only in relation to a limited issue or defect.
- The additional time granted: set out the precise period of time for which the parties agree that time stands still by being suspended or is extended. The parties usually agree that they will not raise any limitation defence which relies on time running or limitation expiring during that defined period. The period usually starts on the date of the agreement until a long stop date or until one party takes a step, such as giving 30 days’ notice to the other party that the running of time is to recommence or by issuing proceedings.
- Termination of the agreement: the agreement usually continues until either the long stop date is reached (although the parties may negotiate a further extension), a party issues court or arbitral proceedings (which itself stops time and negates the need for a standstill agreement) or a party issues a notice which states that time will restart running within, say, 30 days. These provisions require negotiation. A claimant will usually seek to avoid giving the defendant the ability to restart time running by the issue of the notice, as otherwise the claimant may be caught on the backfoot and find it has to promptly issue proceedings to preserve its claim. Clearly such a provision is advantageous to the defendant though and can be used tactically, if the defendant considers the claimant is simply seeking to preserve its claim indeterminately without justification.
Above all, it is important to be commercial. It is usually of benefit to both parties to avoid the issue of proceedings, which can bring with them a swift and sharp rise in legal costs, and agree a standstill agreement to allow the issue or dispute to be resolved economically and efficiently.
Be careful and plan ahead
Whilst standstill agreements are a relatively standard form agreement, they can nonetheless prove contentious and it can therefore take time to get them agreed with the other side. Don’t leave it to the last minute if at all possible (although it is sometimes unavoidable) and be realistic about the terms of the agreement.
Whilst it may be desirable for a claimant, a defendant will often reject a draft standstill agreement which seeks to too widely define the dispute in relation to which time is being preserved. Likewise, a claimant may simply elect to issue proceedings if a defendant will not agree to a sensible standstill period (negotiating a multitude of short extensions is rarely helpful and only serves to increase the parties’ costs and frustration with the situation).
As with almost all agreements, the devil is often in the detail – so speak to your lawyer if you think a standstill agreement is required or if you have received a request to enter into this type of agreement.
Article by Hannah Gardiner, Managing Associate in Womble Bond Dickinson’s Construction and Engineering team.
