Are you a commercial Tenant who is about to take an occupational Lease?

If so, an enlightening article explaining the benefits of a Schedule of Condition; With the changes to dilapidation protocol in January 2012, and the focus now on resolution through negotiation and reasonableness, many Landlords and Tenants will begin to see the benefit in incorporating a Schedule of Condition as part of any lease agreement.

In general terms, a Schedule of Condition is a definitive record of the condition of a property and what it looked like at the point it was occupied/purchased and which may identify any existing defects prior to occupation or commencement of work. It stands as a “point in time”reference to the condition of a property asset and will assist to either limit the Tenant’s repairing liability or assist the Landlord in pursuit of reinstating the premises and / or a dilapidation claim at the end of the lease term.

Many Tenants who enter into a lease or licence to occupy premises do not tend to think about what their repairing obligations may be during the lease term and won’t give this further consideration until they reach the end of their occupation.

Sadly, many also fail to understand the repairing liabilities and responsibilities they are signing up to and the likely financial impact which may be involved in rectifying the premises back to an agreed condition. It may not be at the forefront of a Tenant’s thinking to assess these likely cost implications when they vacate premises, but unfortunately this usually proves to be a very costly error.

Without having proper documentation in place, it can prove very difficult for either party to establish what condition the premises were in at lease commencement, let alone several years later at the end. If parties are unable to reach a settlement the matter can take many months, if not years, to resolve and at a great cost, especially if the matter is referred through to the Courts or determined through Arbitration. Presently, some cases are taking up to 3 years just to be heard by the Court.

Depending upon the client’s requirements, the Schedule can record the asset’s principal features only, or may be prepared to a very high level of technical detail. It may be drawn-up for a variety of purposes, including:-

  • As an attachment to a lease, to limit a Tenant’s dilapidations liability or to highlight any Landlords works in advance of occupation
  • By the commissioning or non-commissioning parties in advance of building works
  • By neighbouring land owners prior to remediation works
  • In support of Party Wall claims The Schedule may be agreed between the Landlord and Tenant at the commencement of a lease.

This is the ideal situation where the Landlord has agreed the Schedule is a fair and accurate representation of what the property looks like and this is appropriately allowed for within the lease and, most importantly, the Landlord has accepted within the lease that the Tenant will return the property in only as good a condition as that which you received it.

A Schedule will usually be a document with photographic evidence of the condition of the property at the outset, accompanied by a narrative description of conditions or specific items within the premises. It will identify any defects or where any changes have already been carried out by the present owner / previous Tenant against any agreed alterations.

This can be of significant benefit before taking on a lease, as it allows for negotiation for alterations and repairs that have been carried out by the present Tenant/lessee for which no responsibility should be taken.

It is also advisable that video footage is taken to supplement the Schedule, as this can be called upon in the future to provide a wider view of the property condition where perhaps the photographic evidence has missed or failed to identify. Once compiled, the document will be signed off by both parties as being a fair and accurate representation of the property’s condition and be appended to the lease. In the circumstance where a Landlord refuses to append a Schedule to a lease, it is still in a Tenant’s best interests to have a one prepared as a reference document, which can be held by their solicitor for future reference.

This will place the Tenant in a far better position when they come to yield- up the lease, as it will give a good realistic picture of what the property looked like at the start of the lease and greatly assist their position when discussing dilapidations in later years. Although, in theory, the Landlord/Tenant could carry out a very similar exercise by themselves, this rarely happens as both parties usually have other things to focus on.

In some cases, photographs or documentation may get lost or misplaced and a situation arises where no proper record is formulated. Whilst a “Gentleman’s Agreement” can be reached between Landlord and Tenant in the beginning, this does not protect the position of either party if the ownership / tenancy details changes during the lease term and entirely different parties are left to try and settle the repairing obligations at the lease end.

In the long term, this can become a very costly exercise and take years to resolve, which impact both the Tenant in terms of future financial liability and on the Landlord in terms of income or ability to secure another Tenant for their premises. There is no standard format for a Schedule of Condition, although good advice would recommend that it is of highest quality. Any Schedule should clearly show as much detail of the building fabric and standard of decoration, have both photographic and written descriptions (covering both good and bad aspects) and have accompanying plans and information to act as reference points for pictures and areas of concern. The Schedule can be tailored to the requirement of the Client, who will be advised by the Surveyor as to what would be recommended, but no matter what the quality of the Schedule, it will certainly provide a better starting place than nothing at all.

If you are considering entering into a commercial Lease and require further information and advice on Schedules of Condition, please do get in touch on 01656 331239 or email us at