Project finance, it occurs after mechanical completion when the project satisfies certain performance requirements (for example, the project can produce the required output or perform the required service at a certain minimum level). This is the most important of the three completion targets typically set out in a construction contract because once a project is deemed substantially complete, the owner of the project can usually take possession of the project and begin commercial operations. The other completion target is final completion. Failure to achieve substantial completion by a specified date typically results in the payment of liquidated damages (see Practice Note, Understanding Project Finance Construction Contracts).

Privately-owned construction, it occurs when the contractual conditions for completion of the construction obligations have been met and the owner is able to take possession or assume beneficial use and occupancy of the project. Most contracts require that the owner or architect certify that the builder has achieved substantial completion. Achieving substantial completion often entitles the builder to a milestone payment that may include release of a portion of its retainage. Depending on the jurisdiction, it may also trigger the running of the statute of repose for construction defect actions (see Construction Laws and Customs: State Q&A Tool: Question 23).

Real estate leasing, defines the moment when there is completion of the construction obligations relating to tenant improvements in the leased premises. The definition of substantial completion can vary because it is usually negotiated by the landlord and tenant. The definition is especially important if substantial completion of the tenant improvements is a condition to the commencement of the lease term.

For example, tenant improvements are usually deemed substantially completed when: