Schedules of condition: what they are and why tenants need one

What is a schedule of condition?

A written description of the premises, room by room and element by element (roof, walls, windows, floors, services), with dated photographs, prepared before or when the lease starts (the RICS Code refers to a “schedule of condition” in its template heads of terms). This guide covers business leases in England and Wales.

The RICS Code for leasing business premises says that if a tenant’s repairing obligations are to be limited to the initial condition of the premises, a schedule of condition will normally be required, and the parties should agree who pays for it. Its template heads of terms include a line for it.

Why do tenants want one?

Some business leases make the tenant keep the premises “in good repair”. The RICS Code says repairing obligations should be appropriate to the length of the term, the condition of the premises and the financial terms, and that limiting them to the initial condition will normally need a schedule of condition. Without such a limit, a covenant like that can require you to put right defects that were there before you moved in, so on an old building you could end up paying to improve it. A schedule of condition, tied into the lease properly, can mean, depending on the wording, that you only have to keep the premises in no worse condition than the schedule shows.

It also matters at the end of the lease. Under the Dilapidations Protocol the landlord’s schedule of dilapidations has to set out the breaches it claims; a schedule of condition is the evidence that a defect was already there.

Worked example (illustrative figures). At the end of a five-year lease the landlord claims £45,000 for repairs. Items costed at £30,000, a worn roof covering and cracked yard surfacing, appear in the schedule of condition annexed to the lease, and the repairing clause says the tenant needn’t put the premises in better condition than the schedule shows.

Damages for disrepair are also capped by section 18(1) of the Landlord and Tenant Act 1927 (see our dilapidations guide), but a schedule is a much simpler defence than arguing about valuation.

What should the photos and notes cover?

• Every room and external elevation, with the roof, gutters and yard if they are within the premises.
• Close-ups of existing defects: cracks, damp, stains, broken fittings, worn flooring.
• Services: heating, lighting, fire alarms, plant, with their age and condition where known.
• A plan or numbering system so each photo can be matched to a location.
• Dates on every photo, and a signed and dated front sheet.

Clear, well-lit photos are more useful than many vague ones. Keep the originals with their file data, and a copy away from the premises.

How do you tie it into the lease?

A schedule only helps if the lease uses it. Three things need to be right:

1. Agree it with the landlord before completion, so it can’t later be called one-sided; the RICS Code says the parties should agree it.
2. Attach it to the lease as an annex, with the photographs, and keep a signed copy.
3. Refer to it in the covenants: the repair, decoration and yielding-up clauses should each say that you needn’t put or leave the premises in better condition than the schedule shows.

A schedule kept on your file but not mentioned in the lease is still evidence of the starting condition, but it doesn’t change what the repairing covenant requires (RICS Code, Part 3 para 7.2 looks to the lease to limit repairing obligations to the initial condition).

When is a schedule of condition most worth having?

• Older buildings, or premises with visible defects.
• Full repairing leases, where you take on the structure and exterior.
• Longer terms, where the end-of-lease bill could be large.
• Any lease where the landlord won’t carry out repairs before you move in.

Getting the schedule agreed and annexed is something to settle before you sign. Have the lease checked by a solicitor first: we introduce you to an independent SRA-regulated solicitor who can review it.