Fail to ‘repair’, prepare to fail . . . . What is a Schedule of Condition?

A Schedule of Condition is a factual and definitive record showing the condition of a property at a particular date. In this article we focus on the use of a Schedule of Condition in leases, where they are most commonly found.

The Schedule of Condition will typically contain:

• good quality, detailed photographs of the whole property;
• some commentary to accompany the photographs;
• a description of the general condition of the property and fabric of the building;
• plans showing the extent of the property; and
• a note of the date the photographs were taken.

Most leases are ‘fully repairing’ which means that the tenant is under an obligation to keep the property ‘in repair’ throughout the term and to hand back the property to the landlord in such a condition at the end of the term. The tenant will be responsible for carrying out and paying for repairs to the whole of the let property (and depending on how the property is described in the lease, this could include the roof, car parking spaces, lifts, air conditioning and so on).

But what should that level of repair be?

It’s generally accepted that the tenant should only be required to hand back the property in the condition it was in when the lease was granted. However, this question has been the subject of many cases brought before the courts.

The main case that the courts tend to go back to is Proudfoot v Hart (1890) which, broadly stated that if the property was in disrepair at the start of the lease, then the tenant would be under a responsibility to put the property into repair and keep it that way. This can be onerous if the property is not in a good state at the start as the obligation ‘to put’ can extend to rebuilding and renewing the property. Without a point of reference, it could leave the tenant with an onerous obligation and the potential of incurring some serious repair costs.

To lessen the exposure to such costs, tenants usually seek to limit their repairing obligation by referring to a Schedule of Condition so that the tenant is not required to keep the property (and return the property to the landlord at the end of the term) in any better state of repair than is illustrated by the Schedule of Condition. ‘A line in the sand is drawn’ so that the tenant is only responsible for keeping (and returning) the property in the state it is in as at the date of the lease. This limitation would need to be agreed by the landlord at the outset and can often be a highly negotiated point.

Agreeing a Schedule of Condition

If a Schedule of Condition can be agreed, the parties need to:

1. ensure that the Schedule of Condition is specifically referred to throughout the lease when it is being drafted and negotiated;
2. agree who will prepare the Schedule of Condition. As the Schedule of Condition is seen as benefitting the tenant, the tenant tends to prepare it themselves or instruct an independent qualified surveyor. The parties agree a time and date to visit the property and the Schedule of Condition is compiled. The Schedule of Condition tends be produced shortly before the lease is completed so as to give a fair representation of the state of the property at the date the lease was entered into; and
3. once the Schedule of Condition has been produced, the parties approve it, sign it and date it. The Schedule of Condition is then appended to the final version of the lease.

Not only is a Schedule of Condition useful to have as a point of reference during the term of the lease it can also be useful exercise to inspect the property in such a detailed way before the lease is entered in to. Any existing defects discovered during the inspection and an evaluation of their repair costs could assist the tenant with lease negotiations.

The Schedule of Condition is particularly useful at the end of the lease as it can be used to establish and limit the tenant’s exposure to a hefty dilapidations bill (i.e. a bill for the sum of the property’s repair costs). With the Schedule of Condition recording what the property looked like when the tenant took occupation, the landlord cannot charge the tenant the costs of putting the property into a better state than the Schedule of Condition shows.

Even if a Schedule of Condition is not agreed by the landlord’s solicitor, it’s always useful for a tenant to prepare one before the lease is entered into. If there are any future disputes, the Schedule of Condition (although not referred to in the lease and appended to it) may assist to resolve them and add weight to a tenant’s argument of the condition of the property.

A Landlord’s use of a Schedule of Condition

Although, I have focused on the benefits of a Schedule of Condition to a tenant, it can prove useful to a landlord when determining the tenant’s dilapidation liability and what alterations the tenant has made throughout the term (that will need to be removed so that the property is reinstated to its original state). Some leases can be over 10 years old and when those leases come to an end, having a record of what the property looked like then and what it looks like now can act as a useful guide when assessing dilapidations and keeping track of the tenant’s alterations.

A Schedule of Condition can take time, effort and patience to initially agree and produce (and, for a decent Schedule of Condition , to pay for), it is worth investing in one so as to avoid a nasty dilapidations bill and any potential for dispute.

For more information regarding a Schedule of Condition and property leases in general, contact Commercial Property Associate Solicitor, Raj Hundal, on 0116 402 7249 or email raj.hundal@bhwsolicitors.com.