Commercial - Dilapidations, Schedule of Condition and Lease Obligations
Commercial inventory work
Commercial inventory practice centres on the schedule of condition annexed to a lease, which limits the tenant's repairing obligation at lease end. Candidates must understand: repairing covenants (full repairing and insuring, internal repair only, decorative repair); dilapidations (the difference between the condition required by the lease and the actual condition at lease end); reinstatement (removing alterations and returning the premises to the original layout); and service charge and plant records (mechanical and electrical schedules, asbestos registers, EPC obligations for let commercial premises).
Traps in exam questions
- Assuming a schedule of condition overrides the lease. It only limits liability to the extent the lease says so; a poorly drafted schedule may not protect the tenant.
- Confusing reinstatement with repair. Reinstatement concerns alterations and layout; repair concerns condition.
- Ignoring the measurement basis. Commercial areas are often quoted on a net internal area or gross internal area basis; questions test which is appropriate.
- Overlooking statutory records. Asbestos registers, fire risk assessments and EPCs are part of the documentary picture and are frequently missed.
Worked example / rule of thumb
Rule of thumb: "The schedule of condition is only as good as its photographs and its wording."
Example: a tenant takes a five-year lease of a warehouse with a schedule of condition recording "concrete floor - minor surface cracking to bay 3." At lease end the landlord claims for resin repair of the whole floor. The schedule, with dated photographs of bay 3, limits the tenant's liability to restoring that recorded condition, not a better one. Without the photographs and the specific location, the protection is weak.
Documentation discipline
Commercial schedules should be room-by-room or bay-by-bay, reference plant and services, and be signed and dated by both parties. Where alterations are permitted, record the baseline layout precisely so reinstatement obligations are clear.