Pay Less Notices: Deadlines, Validity and What to Do When You Receive One

A pay less notice is the notice a paying party must serve if it intends to pay less than the notified sum. Under section 111 of the Housing Grants, Construction and Regeneration Act 1996, as amended in 2011, it has to be served no later than the prescribed period before the final date for payment, and it has to state both the sum the payer considers due and the basis on which that sum has been calculated. Where the contract does not set the period, the Scheme for Construction Contracts sets it at seven days. Get it wrong and the payer has to pay the full notified sum, whatever it thinks the work is worth.

That is the whole rule in a paragraph. What follows is how it plays out, because almost every payment dispute we see turns on a date, a sender or a missing sentence rather than on the value of the work.

The payment cycle, in order

Pay less notices only make sense as one step in a sequence. The Construction Act fixes the order; the contract fixes most of the dates.

Construction Act payment sequence

Step	What happens	When
1. Due date	The payment falls due, usually tied to an application or a valuation date.	As the contract says
2. Payment notice	The payer (or someone named in the contract) states the sum it considers due and how it was worked out. Section 110A.	Within 5 days of the due date
3. Pay less notice	Only if the payer intends to pay less than the notified sum. Section 111.	No later than the prescribed period before the final date (7 days under the Scheme)
4. Final date for payment	The notified sum, or the lower sum in a valid pay less notice, must be paid.	As the contract says

If the payer never issues a payment notice, section 110B lets the payee's own application stand in its place, or lets the payee serve a notice in default. Either way the payee's figure becomes the notified sum, and the payer is back to needing a pay less notice if it wants to pay less.

When counting days, section 116 of the Act leaves out Christmas Day, Good Friday and bank holidays. Over Easter and Christmas that moves deadlines by more than people expect, and it is worth checking the contract's own definition of a day as well.

What a valid pay less notice has to contain

Two things, and both are mandatory.

• The sum the payer considers due at the date the notice is served. It can be zero.
• The basis on which that sum has been calculated. Not a sentence saying the application is overvalued, but enough working for the payee to understand how the figure was reached.

In Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC) the court described the purpose of the basis requirement as giving the payee an adequate agenda for any adjudication that follows. That is a useful test from either side of the table. If you could not run an adjudication against the notice because you cannot tell what is being disputed or why, the notice is in trouble.

The notice can come from the payer or from a person the contract names to give it on the payer's behalf, typically the contract administrator or the payer's quantity surveyor. A notice from somebody else, however senior, is open to challenge.

What happens when the notice is late, missing or defective

The payer must pay the notified sum by the final date for payment. That obligation is immediate and it is enforced quickly: a subcontractor holding a notified sum that has not been paid can refer it to adjudication and, if successful, enforce the decision in the Technology and Construction Court in a matter of weeks.

The payer is not shut out of value for ever. Since Grove Developments Ltd v S&T (UK) Ltd [2018] EWCA Civ 2448 the payer can bring its own true value adjudication to establish what the work was actually worth. But Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC) confirmed the order: the notified sum has to be paid first. We set out the background, including how ISG v Seevic was overtaken, in our guide to smash and grab adjudication and the notified sum.

The practical consequence is cash flow. A missed pay less notice does not usually change who is right about value in the end. It changes who holds the money while the argument happens, and for a subcontractor that can be the difference between finishing the job and not.

If you have just received a pay less notice

Work through it in this order before you respond to the substance.

• Check the date it arrived against the final date for payment. Count the days properly, leave out bank holidays, and use the contract's own payment timetable rather than the one you assume it has. Many bespoke subcontracts shorten the Scheme periods.
• Check who sent it. Is it from the payer, or from the person the contract names to give notices? Was it served the way the contract requires, to the right address and by the right method?
• Check that it states a sum and a basis. A covering email with “see attached” and a spreadsheet you cannot follow is weaker than it looks. A notice that says only that the application is not agreed is weaker still.
• Check that it relates to the right application. Notices that refer to the wrong valuation number, or that pre-date the application they purport to answer, are more common than they should be.
• Look at what has been deducted. Contra charges, liquidated damages and set-offs all need a contractual or legal right behind them as well as a valid notice. Our guide to challenging contra charges covers this separately.

If the notice fails on any of the first four points, you may be entitled to the notified sum. If it survives them, the dispute is about value, and the question becomes whether the gap is worth arguing over. That is a commercial judgement as much as a legal one, and we will give you a straight answer on it.

If you are the payer

Diarise every final date for payment the day the application arrives, work back by the contract period, and treat the resulting date as immovable. Then write a notice that a stranger could follow: the figure, a short schedule showing how you reached it, each deduction identified and justified, and a reference to the application it answers. Send it from the right person by the method the contract requires and keep proof of delivery.

The notices that fail are rarely badly reasoned. They are late, or sent by the wrong person, or say “we disagree” without saying why. All three are entirely avoidable, and our free payment notice templates are built around exactly these requirements.

Pay less notice questions

How many days before the final date for payment must a pay less notice be served?

Whatever the contract says. If the contract is silent, or does not comply with the Construction Act, the Scheme for Construction Contracts applies and the notice must be given no later than seven days before the final date for payment. Christmas Day, Good Friday and bank holidays are left out when the days are counted.

What happens if no pay less notice is served?

The payer must pay the notified sum by the final date for payment. That is the effect of section 111 of the Housing Grants, Construction and Regeneration Act 1996. The payer can still argue about value afterwards, by bringing its own true value adjudication, but following Grove Developments v S&T [2018] EWCA Civ 2448 and Bexheat v Essex Services [2022] EWHC 936 (TCC) it has to pay first.

Can a pay less notice say that nothing is due?

Yes. The sum stated can be zero, provided the notice also sets out the basis on which that figure has been calculated and is served in time.

Does a main contractor need a pay less notice to deduct contra charges?

Yes, if the deduction takes the payment below the notified sum. Section 111 does not distinguish between a disagreement about the value of the work and a cross-claim such as a contra charge or liquidated damages: anything withheld from the notified sum needs a valid pay less notice served in time.

Can I still dispute a pay less notice that was served on time?

Yes. A valid pay less notice only stops you recovering the notified sum automatically. It does not make the payer's figure right. You can still challenge the valuation, or the deductions, and if it cannot be agreed you can refer the true value of your application to adjudication.

What is the difference between a payment notice and a pay less notice?

A payment notice says what the payer considers due and must be given within five days of the payment due date (section 110A). A pay less notice is only needed if the payer then intends to pay less than the notified sum, and it is served later, no later than the prescribed period before the final date for payment (section 111). Confusing the two deadlines is one of the commonest errors in this area, including in a good deal of advice published online.