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Commercial Lease - Do I need a Schedule of Condition?

Commercial Lease - Do I need a Schedule of Condition?

7th November 2023

A lease of a commercial property is often a full repairing and insuring lease (an “FRI lease”), meaning the tenant takes on the full costs of repairing and insuring the whole of the property, including the structural parts – such as the foundations, walls and roof.

Other leases are “internal repair only” where the Tenant is only obliged to look after the internal parts of the property, such as the floor, wall and ceiling surfaces.

Regardless of whether the lease is FRI or Internal-Repair, the repairing obligations can place a considerable financial burden on tenants, so it is important that the tenant is clear about the extent of the property they will be required to repair, and which elements of repair they will be responsible for, either directly or by reimbursing the landlord via a service charge.

Many people mistakenly believe that they only need to hand back a commercial property in a similar state of repair and condition to what it was in when they first took the lease. However, this is usually not the case.

The repairing obligations in a lease typically require a tenant to put and keep the property in a good and substantial state of repair and condition. This can mean putting the premises into a better state of repair and condition than they are in when the tenant first takes occupation. This can be particularly onerous, especially when the property is in a poor state of repair to begin with. It is therefore important to ensure you properly assess the current state and condition of a property and check what your repairing liabilities are going to be before committing to a commercial lease.

One way that a tenant can seek to limit their repairing obligations is by reaching an agreement with the landlord to annex a Schedule of Condition to the lease.

What is a Schedule of Condition?

A Schedule of Condition is (usually) a series of photographs that evidence the state of repair and condition of the property and highlight any areas of disrepair at a certain point in time – usually immediately before the lease commences. The repairing clause in the lease is then caveated so that the tenant is not required to put the property into any better state of repair and condition than as evidenced in the photographic Schedule of Condition.

Why use a Schedule of Condition?

Schedules of Condition can be useful in helping safeguard against future dilapidations claims from the landlord, so the more detailed the photographic Schedule of Condition the better protection it can afford a tenant.

Ideally, any agreement for the inclusion of a Schedule of Condition should be reached during initial negotiations between a landlord and tenant and be included within the agreed Heads of Terms.

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