It is extremely common for a tenant to seek to limit its liability for dilapidations under a commercial lease with reference to the condition of the premises at the start of a lease. In such instances, a tenant will typically insist that its obligations under the lease are restricted to keeping the premises in the condition shown in a 'schedule of condition'.
As the name suggests, a schedule of condition is a detailed record of the condition of the premises at the start of the lease. This usually takes the form of a photographic schedule with accompanying text commentary (which is referred to in, and appended to, the lease).
So far, so straightforward. But not all leases which include a schedule of condition give rise to identical obligations for a tenant. Here are three key points to bear in mind:
- Does the schedule of condition limit a tenant's obligation to repair, renew and rebuild only, rather than limiting all the tenant's obligations? If so, other obligations imposed upon a tenant which concern the physical condition of the premises, (such as the obligation to decorate the interior and exterior of premises at fixed intervals) will not be limited by the contents of the schedule of condition.
- Is the tenant obliged not to put the premises into any better condition than evidenced by the schedule of condition, or is the tenant obliged not to let the premises fall into any worse condition? Although this distinction has not yet been the subject of any commentary by the Scottish courts, it could be important. The usual trigger for a tenant's obligation to carry out repairs is that the premises have fallen below the standard of repair specified in the lease (normally 'good and substantial repair' or similar). But if a tenant is obliged to maintain premises 'in no worse condition than evidenced in the schedule of condition' then, arguably, its obligation to repair is triggered every time the condition of any part of the premises falls below that shown in the schedule of condition, even if this would not cause the premises to fall below 'good and substantial repair'. This could be onerous for a tenant.
- Even if a schedule of condition limits all obligations under the lease and is expressed as an obligation not to put the premises into any better condition than evidenced, considerable uncertainty can still arise. If part of the premises falls below the standard of repair specified, then it may be physically impossible to remedy the want of repair without putting the premises into a better condition. For example, a schedule may note 'scuff marks' on a wall which subsequently deteriorates and needs repainted. Or the schedule may note a defective window frame which subsequently deteriorates, and needs replaced. In such instances there is, of course, plenty of scope for argument, but there is also risk that a tenant could be liable for the full cost of repair - notwithstanding the contents of the schedule of condition.
If you are a commercial landlord or tenant and need advice on a dilapidations claim then please get in touch with our Real Estate Disputes team or your usual Brodies' contact.