The value of schedules of condition in commercial property

When you are looking to acquire your first, or next, commercial property it is easy to get caught up in the excitement of the decision, but it is important that you take steps early on to protect your interests.

One of the things that should be considered when entering into a commercial lease or finalising a property transaction is a schedule of condition.

This is true for both landlords and tenants, as it outlines the property’s condition at the point of completion, which can prevent disagreement over repairs.

The last thing you want to do is move into a property to find you are now liable for considerable works.

What does a schedule of condition contain?

A schedule of condition is a detailed report recording the state of a property on a specific date, usually just before a lease begins. It typically includes:

• Written description: A full account of the property’s condition, highlighting defects such as damp, cracks or wear and tear.
• Photographs: Timestamped images that provide visual evidence of the building’s state, inside and out.
• Inventory: A list of fixtures, fittings and equipment, with their condition noted.
• Date and location – details to ensure the report is clearly tied to the property and lease.

Why it matters for commercial leases

Commercial leases often set out who is responsible for repairs and maintenance. For example, under a full repairing and insuring (FRI) lease, the tenant is liable for all repairs, while an ‘internal only’ lease limits responsibility.

A schedule of condition documents the property at the start of the lease. This protects both parties by:

• Giving landlords evidence to enforce repair obligations if damage arises during the tenancy.
• Shielding tenants from liability for problems that existed before they moved in.

It is particularly valuable when negotiating dilapidations claims at the end of a lease or during renewal discussions.

While not a legal requirement, a schedule of condition is strongly advised. Without it, tenants risk unexpected repair costs, while landlords risk disputes over liability.

Importantly, the schedule must be formally referenced in the lease to be enforceable. Keeping it on file is not enough.

Schedules are usually drawn up by independent building surveyors. Solicitors then ensure the document is incorporated into the lease terms, so it can be relied upon if disputes arise.

Protecting your position

A carefully prepared schedule of condition, properly referenced in your lease, can help you avoid costly disputes and protect your investment.

If you are considering a new commercial lease or property transaction, Hethertons’ commercial property specialists can guide you through the process and ensure your interests are fully safeguarded.

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