For Landlord and Tenants
If you are a commercial landlord or commercial tenant, you will enter into a lease on the property you lease out or occupy.
The vast majority of commercial leases contain tenant covenants to repair, decorate, comply with statute, and to yield up the demised premises at the end of the term. Many also include covenants to reinstate alterations at the end of the term (or obtain landlords consent to carry out alterations). Generally this is what is known as a Fully Repairing and Insuring Lease (FRI), so for a tenant it is vital that you fully understand your potential liabilities before signing the lease.
If you wish to leave the premises before the end of the lease, you will need to surrender your lease via your solicitor. Whatever the reason for the surrender and whatever the outcome, there is little doubt that if you have a fully repairing and insuring lease, that you will have considerable additional expenses.
Landlords make money at the end of every repairing lease and though we act for many nationally known landlords and property managers, we also act on behalf of tenants. When you surrender a lease, you are not in the strongest of negotiating positions and your landlord’s surveyor and legal team will know this.
Failure to comply with the terms of the lease can lead to a claim for Dilapidations, for the costs of returning the property in a reasonable state of repair. Even though the lease may say “keep” in good repair, in practice that means “putting” it into good repair. Settlement of dilapidations can either be the tenant paying the cost of those works to the landlord, or the tenant undertaking the works before the end of the lease.
A Schedule of Condition is a record of the condition when the tenant takes occupation, and is appended to the lease and used to mitigate the level of dilapidations. At the end of the tenancy (and sometimes in the middle of the tenancy), a Schedule of Dilapidations is drawn up by the landlords surveyor, and served on the tenant.
Many commercial tenants do not bother with a Schedule of Condition because they think it is too expensive. That is false economy, as a good surveyor can potentially save you thousands of pounds. As long as you maintain the property in accordance with the terms of your lease, a schedule of condition will pay enormous dividends when you come to vacate the premises.
Schedule of Condition
A schedule of condition survey is commissioned before the signing of a lease in order to determine the condition of the building so that any existing defects and their repair costs are identified prior to any commitment being made.
The schedule of condition survey includes a report on the condition of the building together with notes concerning potential future defects that might need attention.
Often a schedule of condition survey can be used to negotiate with your landlord to have immediate defects corrected prior to your taking over the lease and thus save you considerable sums of money. For example, if you are taking over an existing lease, the chances are that you will inherit the repair liabilities from the outgoing tenant.
A properly prepared schedule of condition survey, properly agreed with the lessor, will in most cases, limit your liabilities to future deterioration only. Our own approach in producing a schedule of condition is to compile a meaningful register of photographs that will adequately record the true condition of the property (and it’s grounds) in a way to counter an aggressive landlord’s dilapidation claim at the end of a lease.
The longer the lease, the more detailed the schedule of condition should be, simply because buildings deteriorate over time.
Schedule of Dilapidations
At the end (and possibly middle) of your lease, the landlord (or more usually their surveyor) prepares a Schedule of Dilapidations which is served on the tenant. This is a statement of the defects which the landlord considers the tenant should undertake, during or at the end of the lease.
It is usual for the tenant to have to carry out any works before the end of the lease, so you should be thinking about it well in advance. If the lease term comes to an end and you haven’t done the works, it will be too late, and you will be forced to reimburse the costs of repairs, and possibly any loss of rent whilst they do it, to the landlord.
For tenants it is very important that they also engage a surveyor to defend the dilapidations claim. This expertise is particularly valuable to tenants wishing to end their leases early, or simply when their lease expires.
A dilapidations survey is as much a legal issue as a practical one. Many Leasehold get involved in protracted legal disputes, when in fact a commonsense approach is far better and obviously less costly. We do our best to reach an amicable settlement with the opposing parties surveyor.
We undertake both Schedules of Condition for tenants, and Schedules of Dilapidations for landlords. We use our extensive expertise to give the best possible advice and obtain the best possible outcome for our client.
There are many ways to save money when leasing commercial property, but cutting back on a schedule of condition survey should not be one of them. A good schedule of condition will pay for itself many times over at the end of your lease.