The importance of a detailed schedule of condition -The devil is in the detail

A schedule of condition can be a useful document for a tenant who is taking a new lease on all types of commercial property, regardless of the condition.

A schedule of condition is often appended to a lease to protect a tenants repair liabilities for when they hand back the premises to the landlord at lease end, however, it is common that the schedule of condition will not give the tenant as much protection as they may think. This can be for a number of reasons which we will look at in more detail below:

Only relates to repair obligation

The schedule of condition will often only protect the repair covenant of the lease, however, whether this was the original intention of the parties is not always clear. If a schedule of condition has been agreed between the parties during lease negotiations then in order to provide the best protection it should protect the repair, decoration and yield up clauses. The decoration cost can be substantial if this is not covered in the schedule of condition.

Wording of the lease

If something is not maintained then the condition will get worse over time. The wording of the lease is therefore very important and a change of the wording within the lease would protect the tenant more than if a schedule of condition is appended.

An example could be a warehouse roof. They can often be difficult to fully inspect and get the required detail to totally protect a tenant, and if the roof leaks, the tenant will most likely have to repair the roof anyhow! A change in wording to only keeping the roof wind & watertight or even inserting a landlord repair covenant maybe a possibility. Close liaison is required with the clients solicitors on these issues during drafting.

Understand the demise?

Before a surveyor is instructed to inspect to prepare a schedule of condition, it’s imperative that the premises that are going to be demised to the tenant are clear & understood. For example, is it internal & external repairing? does it include the roof? does in include M&E? are windows included? is anything specifically excluded?

We have come across schedules of condition whereby it’s clear the surveyor instructed has not understood the demise and large areas are missed. This can be very costly to the tenant at expiry.

Poor quality photos and the rise of technology

We’ve often seen blurred or poor quality photos attached to a schedule of condition which are a real waste. The photos should be taken with a good quality camera providing the required detail.

We recommend that roofs are inspected with drones in order to get the required detail as a cherry picker will only give the surveyor limited access and often areas of the roof are not accessible.

A drone can be a great tool in a surveyors toolkit in order to provide the required detail to areas previously not accessible. 

Another technique being used is 360⁰ cameras which provide excellent detailed photographs which can be incorporated into a schedule of condition to assist in providing the required level of detail to assist in its protection.

Mechanical & Engineering (M&E)

This links to the section on the demised premises. It is important to understand what M&E is included in the demise and that this is inspected by an M&E specialist to fully understand its condition.

This may include items such as lifts, air conditioning systems, electrics, heating systems etc. The more detail undertaken and included in the schedule of condition, the more protection a tenant will have. We often see schedules of condition that have completely missed the M&E aspects and leave the tenant exposed at lease expiry.

Lack of description

A photo is a good start to producing a schedule of condition document, however, the description of the photo is equally important and adds weight to the photographic evidence.

We often see schedules of condition that just include photos and no description whatsoever. A detailed description can really assist explaining what the photo is showing. Without a description the photo can be interpreted in different ways and lead to disagreement between the parties at lease end.

Photos can also have arrows and text boxes on the photos picking out disrepair in more detail to add more weight to the schedule of condition.

Use of layout plans

A plan to assist in describing the location of photos is very helpful, even for a property which has a basic layout. We've often seen photos within a schedule of condition which show a close up photo but there is little chance of knowing where the item is located.

Cost of the schedule of condition

As with many things in life, things are often cheap for a reason and schedules of condition are no different. By going with the cheapest cost to produce a schedule of condition may not always be the best option and you may pay in the long term for the poor quality schedule that is produced.

As the title of this article eludes, the devil is in the detail and the more time that is put into producing a schedule, the better (within reason). Always ask to see a sample schedule of condition of your surveyors work prior to instructing.

Break Clause

Always ensure that there is no material or absolute compliance clause attached to the break clause. Undertaking dilapidations works when a schedule of condition is attached is difficult and financial settlements are much more favourable.

Lease Expiry

When a schedule of condition is attached to a lease it makes it difficult for the tenant to undertake any dilapidations works to comply with lease terms. It is therefore recommended that a financial settlement is pursued with a landlord. It is however important that strategy is reviewed at lease 12-18 months prior to lease expiry to consider what is the correct strategy to be adopted.

M³ Dilapdiations Consultancy regularly prepare schedules of condition for clients and advise on lease repair obligations prior to tenants taking a new lease.