Taking a lease of offices, a shop or a light industrial unit is usually a commercial decision about location, rent and space. The repairing covenant often gets less attention than it deserves. Yet it can turn out to be one of the most expensive parts of the deal, because at the end of the term the landlord may expect the premises back in good repair, whatever their state on the day you moved in.
The problem with full repairing leases
Many commercial leases are on full repairing and insuring terms. A covenant to “keep in repair” can, depending on its wording, oblige a tenant to put the premises into repair first if they are not already in that state. A tenant who takes on a tired building with a leaking roof, cracked render or worn out windows may find, years later, that the cost of putting those things right is part of a dilapidations claim.
What a schedule of condition does
A schedule of condition is a factual record of the state of the premises at the start of the lease. It is written, room by room and elevation by elevation, and supported by photographs. When it is properly referred to in the lease, the tenant’s obligation can be limited so that the premises need be kept in no worse condition than that shown in the schedule.
To be useful, the schedule should:
- be prepared before the lease is completed, not after you move in;
- be detailed enough to be read and understood by someone who never saw the building;
- include clear, dated photographs;
- be agreed by both parties and physically attached to the lease, with wording in the lease that refers to it.
Landlords benefit too
A schedule of condition is not only a tenant’s tool. For a landlord it gives a clear starting point, reduces argument at the end of the term and helps when deciding whether the tenant has met its obligations. Disputes about what the building was like many years earlier are expensive for everyone.
Our advice
Before you sign, ask a building surveyor to look at the premises, explain the main risks in the repairing covenant and prepare a schedule of condition. Talk to your solicitor about how the lease will refer to it. A modest fee at the start can save a great deal at the end.
See our Dilapidations service, and how we later advised a landlord on a proportionate approach to dilapidations.