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Leasing commercial premises can have unexpected pitfalls for business owners, one potential pitfall being dilapidations. Business owners may be unaware of the financial risk they are taking when signing a lease that often requires them to return the property in the same condition as it was when they first leased it.
Failure to repair, redecorate or reinstate the premises in accordance with the lease constitutes a breach of contract, which is commonly referred to as dilapidations. A claim for dilapidations can typically run into tens of thousands of pounds and considerably more depending on the type, size and condition of a property.
Tenants without expert advice and protection could face financial difficulty at the end of the lease upon receiving a claim for dilapidations. However, a Schedule of Condition can help limit these risks and minimise costly dilapidations disputes.
A Schedule of Condition is a record of the property's condition at the beginning of the lease consisting of photographs and descriptions. This document is referenced and attached to the lease allowing a tenant's surveyor to refer to it when a claim for dilapidations arises. The Schedule of Condition can provide evidence of disrepair or previous tenant's alterations that existed prior to the tenant's occupation.
It is important to note that the exact format and level of detail of a Schedule of Condition is crucial as is the wording within the lease. Furthermore, a Schedule of Condition does not completely limit a tenant's liability for dilapidations as landlords can still make claims for damage or wear and tear that occurs during the tenancy.
Therefore, it is essential for tenants to seek advice from a commercial property solicitor and surveyor specialising in negotiating leases and Schedules of Condition. They can ensure that the wording of the lease is appropriate, and the Schedule of Condition is comprehensive enough to limit the tenant's liability as much as possible.
In conclusion, a Schedule of Condition is essential when leasing commercial premises. It serves as a benchmark against which the property can be assessed in the future, limits repairing obligations, and helps avoid costly disputes. While it does not completely absolve tenants of their liability for dilapidations, it can provide crucial evidence that can help significantly limit their financial risk.
Michael Brough MRICS