Why commercial property tenants should have a schedule of condition

Schedule of Condition - Commercial Property

When negotiating terms for a new lease of commercial premises for our clients we aim for the lease to refer and incorporate a photographic schedule of condition.

A schedule of condition is a series of photographs accompanied by narrative used to document the condition of premises shortly before the start of a lease.

This record is a snapshot in time detailing the condition of the premises and highlighting any items of disrepair or required redecoration.

 A schedule of condition is important for a tenant because a lease generally requires an occupier to yield up and re-instate the premises at the end of the term. The lease may state that the premises are to be returned to the landlord either:

1) In full repair.

2) In the condition that they were in when the occupier took on the premises.

In the former case a requirement to return the premises in full repair can be an onerous and expensive obligation for an occupier where the premises is anything other than newly constructed or refurbished.  Tenants taking a new lease of an office agreeing to return the premises in full repair can find themselves unwittingly having to rectify and pay for the cost of the landlords (or a previous occupiers) repairs or redecoration. They can essentially inherit historic disrepair from the landlord or the previous occupier and end up having to put the premises back into a better condition than what it was when they signed the lease.

The latter case can help to ensure that a tenant doesn’t inherit disrepair from a previous occupier or from the landlord.  However, without a photographic schedule of condition agreed and signed by both parties at the start of the lease there is likely to be a dispute as to what the condition of the premise were at that time.

A schedule of condition should be prepared as close to the lease start date as possible and preferably by a chartered surveyor. One can be prepared in a few days and while the cost of preparation varies with the size of the premises it can often pay for itself several times over at the end of a lease.

Written by Jamie McNeil a director of commercial property occupier advisors McNeil Commercial. McNeil Commercial is a Bath based firm providing valuable advice to a wide range of clients across the UK.