How to produce a Schedule of Condition and append it to a new lease

Posted in: Property Services

At TPG, one of our aims is to demystify some of the terminology that surrounds the world of building surveying and consulting.

We’ve already explored Party Walls and dilapidations and in both of these cases, we looked at why a Schedule of Condition might be needed.

When we looked at the reporting and definitions relating to dilapidations, we briefly touched upon Schedules of Condition and why they are important.

Since we couldn’t go into specifics, we asked our Director, Andy Harvie, to put together a blog that was a bit more detailed.

What is a Schedule of Condition?

It’s a factual record of the Condition of a residential or commercial property, normally prepared for legal or contractual reasons.

A landlord, tenant, employer, contractor, or neighbour would appoint an independent expert to prepare a Schedule of Condition for a number of reasons.

When it relates to the Party Wall etc. Act 1996, it provides evidence of the condition of the neighbouring building prior to works beginning. The party wall surveyors can then re-inspect the building to determine whether any damage has occurred and if repairs should be carried out.

A Schedule of Condition may also be required when a new lease is entered into.

It will confirm and record the condition of a property before the lease term commences so that any existing defects and their repair costs are identified prior to the lease being signed. This means that the tenant’s liability for those repairs is limited.

They can also be referred to towards the end of a lease to establish responsibility for dilapidations and reinstatement.

What should you include in a Schedule of Condition?

There isn’t really a single authoritative guide on what a Schedule of Condition should include.

However, the RICS Party Wall guidance document does have an example. You’ll find it in Appendix C of the document, which you can download here.

This is merely a guidance note so it’s not mandatory but typically you would need to include:

• The purpose of the Schedule
• Location details and the extent of the property
• A general description of its construction
• The time, date and weather conditions during the inspection
• Aspects included in or excluded from the assessment.
• Drawings of the property to provide clarity if required
• Photographs (potentially 360º photos) and possibly a video of the property
• A written record of the location, nature and condition of each item inspected (inside and out)
• A written record of any existing issues, such as cracks, staining, holes, decay, discolouration, leaks, defects, disrepair or deterioration
• Any specific tests that may have been carried out (e.g. to record the extent of moisture content in timber)

The good, the bad and the ugly Schedules of Condition

Let’s assume that you’ve already decided that a Schedule of Condition is required. Perhaps you have been advised by your investors or legal advisers that you need one.

Typically, our involvement has been in relation to a lease when a landlord has served a Schedule of Dilapidations on the tenant and we have been asked to advise on the conditions of the property.

In our many years of building surveying, we have come across plenty of Schedules of Condition produced by others.

These can range in quality from a handful of poorly taken photographs to seemingly detailed schedules that lack relevant content through to more detailed and thorough documents.

A poor quality schedule does not assist with a dilapidations negotiation, in fact, it does nothing to support the aims of the protocol for settling dilapidations claims.

Dispelling some Schedule-of-Condition myths

I recently did a dilapidations presentation to a local property networking group and tried to dispel a few of the myths that surround the subject.

Myth 1: Schedules of Condition are a valuable way of limiting or excluding a tenant’s end-of-term redecoration liability

Actually, any decoration is typically an absolute obligation and unlikely to be limited by a Schedule of Condition.

Myth 2: All Schedules of Condition are a valuable way of limiting or excluding a tenant’s end-of-term repairing liability

In this case, you could be fooled into thinking that a photo without properly worded descriptions will provide suitable protection.

The risk of poor quality photos in a Schedule of Condition

Look at the two photos below, relating to a dilapidation claim;

The photo on the left is out of focus and was the only photo in a Schedule of Condition of a side elevation we were asked to review.

The description read; “Fair/Good Condition.  Brickwork in fair Condition but pointing worn and uneven in locations.  Brickwork uneven and pointing generally crude”

The team at TPG took the close-up photo on the right during our inspection. Due to the poor quality of the photo on the left, it’s impossible to compare the two.

As a result, the photo on the left and its description are almost worthless to offer any limiting liability for a tenant when a landlord is claiming significant deterioration of the building fabric during the term of a lease.

In this case, the cost of the tenant’s works was minimal in relation to the expensive scaffolding bridge that needed to be constructed over the adjoining property.

The importance of supporting text in a Schedule of Condition

We have also seen many photos that form a photographic record of the condition without any supporting text to describe the condition of parts of a building.

A good example is when the owner or tenant decides to save appointing a Chartered Building Surveyor and decides to take photos themselves to append to a lease.

Although it saves the cost of surveyor’s fees at the commencement of the lease, the implications can be huge.

The photo on the left shows the walls/floor/ceiling and clearly illustrates damp ingress.

However, it fails to record the stairs leading to the basement and the associated rotten timbers. Also, there is no condition recorded for the right-hand-side wall or the wall behind the photographer.

The photo on the right focuses on the defective window but doesn’t record the extent of the rot. It is also impossible to see the condition of the two walls, floor and door outside the photo.

In both cases, the tenant has taken too few photos and not described the condition in any written text. As a result, they cannot rely on the Schedule of Condition photos for the parts of the rooms that can’t be seen or in fact for some of the parts that you can see.

The TPG approach to Schedules of Condition

When the team at TPG complete a Schedule of Condition, we typically:

• Undertake a thorough inspection of the building, including all accessible areas and the roof
• Take two types of photographs, which assist us when writing the Schedule of Condition;
  • Normal 2D photos (often hundreds) using a high-resolution camera.
  • At least one 360º photo, using a 360º camera, taken from the centre point of each room.
• Take detailed notes about the major component parts and services within each room and record the condition of all elements.
• Use these site notes to write the detailed Schedule of Condition in a similar format to that referred to in Appendix C of the RICS guidance note.
• Include introductory text (2-3 pages long) at the start of the Schedule of Condition. This describes the extent and type of the building, who the client is and the reason for the report.
• Define what key words mean, including descriptions relating to the sizes of cracks, like hairline or slight, or what words like good or fair mean.
• Date the Schedule of Condition and refer to when the original photos were taken.
• Append all photographs to the report and, where necessary, number and cross-reference them in the report for easy reference in the future.

If you need to prepare a Schedule of Condition, the best way to avoid or limit costly dilapidations disputes later in the lease term is to employ the services of a trusted and knowledgeable professional.

Luckily, the team at TPG have plenty of experience when it comes to preparing Schedules of Condition. Get in touch today to find out how we can help.