Schedules of Condition and Dilapidation – What are they and why are they important?

Schedules of Condition and Dilapidation are vital components of a commercial lease agreement that can be overlooked BUT to do so is to risk costly and lengthy disputes for either a tenant or a landlord.

The Schedule of Condition

The Schedule of Condition is a complete record of the condition of the property on a particular date that can be used as a benchmark against which its condition can be assessed in the future and any changes identified. It is a factual report of the property carried out at the beginning of the tenancy.

It is advisable to appoint an independent expert to prepare a schedule of condition and to seek agreement from the other party that the schedule is a fair assessment of the property’s current condition. Both will carry more weight in the event of any dispute in the future concerning any disrepair that the property has come under.

What many tenants fail to realise is that when they move out the landlord will expect the building to be in the same state it was in on the day they arrived. The way to avoid any issues is to draw up and agree a schedule of the condition of the premises – effectively a benchmarking of a building’s condition – at the start of the tenancy.

The Schedule of Dilapidation

A Dilapidation Report is used at the end of a tenancy to assess any repairs required to reinstate the premises to the condition it was in at the beginning of the tenancy. This is prepared based on the repairing conditions clause contained in the lease. A lease may be classed as a ‘FRI’ lease – Full Repairing and insuring or ‘IRI’ – Internal Repairing and Insuring. A tenant who takes on an FRI lease bears full responsibility for the maintenance and repair of the property internally and externally. In an IRI lease the tenant is responsible for only the internal repairs and decorations with the landlord being responsible for the external upkeep. The latter is usual in the case of multi tenancy situations.

A Schedule of Dilapidation enables any repair obligations to be resolved quickly and the landlord is then able to move on with re-letting the premises. If prepared in time, the Schedule of Dilapidations can be served on the tenant so that they can complete the works before leaving. If prepared after the lease has ended, the Schedule of Dilapidation will form the basis of the landlords claim for compensation.

What to do next

Both Schedules are very property specific and both should be prepared by an independent observer such as a Chartered Surveyor. O’Neill and Co can advise on the preparation of Schedules of Condition and Dilapidation.

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