Should tenants have a schedule of condition prepared when taking a new lease on a premises?
The short answer is ‘Yes’!
However, if your company is considering taking a lease on a new premises, with all the liabilities and responsibilities involved you may feel that it would be prudent to read on..
When a lease on a commercial premises is signed, tenants are obligating themselves to the repairing (and other) liabilities set out within it. These are important to fully understand and bear in mind throughout all stages of the occupation of the premises.
However, if as part of the lease negotiations agreement is reached to include a schedule of condition (SoC), this will almost certainly be beneficial. SoCs can be prepared by either party’s surveyor and sometimes need to be agreed by the other. They comprise a set of photos, sometimes along with text annotations or full descriptions. The intention is for this to illustrate the benchmark condition which the leasehold premises must be returned in at expiry.
What to look out for in a Lease Schedule of Condition?
It is imperative that tenants’ solicitors negotiate amended repairing and redecoration clauses, so that they are limited by the SoC.
Normal wording expected might be, ‘…Provided that the Premises are not handed back in any worse condition than as evidenced in the Schedule of Condition dated….’
The schedule must also be appended to the lease, therefore forming part of the legal deed, to have full legal effect.
Tenants and their solicitors should retain a good colour copy of the lease. This should allow for photos to be reviewed at expiry; small, black & white, poorly photocopied photos will be of no use!
Lease Schedule of Condition Benefit to tenants
A decent schedule of condition will help to limit a tenants’ end of lease dilapidations liabilities.
Decorative condition, carpets and other building fabric elements are noted and recorded, setting the bar for a tenant’s repairing standard. They can also help to show what the fit out is or was like at commencement, in terms of finishes and layout etc.
In some cases, they may still be helpful in reducing tenants’ liabilities even if they cannot relieve them completely.
For instance, if cut edge corrosion is noted to roof sheets initially, this will have worsened considerably by the end of the term.
However, tenants should always enter leases with open eyes as to their responsibilities and expectations. Premises are always going to deteriorate during lease terms through use of the space. Surveyors and solicitors can advise you on these matters and how to get the best position when taking a new lease.
Not the silver bullet…
A SoC will not release tenants from all their dilapidations liabilities, far from it. This depends on various other factors, such as lease length, what works tenants intend to carry out whilst in occupation (alterations etc), the nature of the tenant’s business etc.
Take for example, a ten year FRI (full repairing and insuring) lease on an industrial unit. Such a unit will inevitably become further soiled, weathered, damaged and deteriorated throughout the term.
The tenant would clearly be responsible for all the disrepair which has occurred since commencement, all reinstatement (removal of alterations) and potentially redecoration work too (if the redecoration clause is not limited by the SoC as well).
Even with an SoC, there are usually dilapidations items which the landlord will want to claim for in a schedule of dilapidations. Plus they will normally be able to charge tenants for the cost of the dilapidations schedule too, as this is also ordinarily a lease obligation on tenants.
Lease Schedule of Condition Summary
To conclude, there are undoubtedly benefits to tenants in having a SoC agreed and included in the lease. Although some wear and tear will occur during the lease term, they set the bar for the standard they must be returned to the landlord in. Come expiry, they will at the very least muddy the waters somewhat in terms of what the landlord can claim for and create a stronger dilapidations positions for tenants.
Anstey Horne assist commercial landlords and tenants on all aspects of dilapidations. We provide specialist surveys, new lease schedules of condition and general dilapidations advice.
See our Dilapidations Fact Sheet for more information.
For any further help or advice, please call our Enquiry Line on 020 4534 3132, or contact a member of the team direct, details below:
BSc (Hons) MRICS