Schedules of condition in pub leases – and with other similar commercial properties – are not necessarily a foolproof way of limiting a tenant’s repairing liability.
The Pubs Code Adjudicator has issued various bits of useful advice for tied pub tenants in recent months. Of particular note is the 10-page “fact sheet” published on its website on 17 October 2022: What Tied Pub Tenants Need to Know about Repairs and Dilapidations.
A theme of the guidance set out in this fact sheet is the role played by the schedule of condition. The guidance starts by saying the pub owner “should provide you with all the information about repairs to the property before you enter into your agreement, including a schedule of condition which records the state of repair of the property at the start of your agreement”. This simply restates the requirement of Regulation 11 and paragraph 10(1) of Schedule 1 to the Pubs Code etc. Regulations 2016.
The guidance then explains that a schedule of condition is: “a document… which summarises the state of repair of the premises”. It continues by noting, for the benefit of the tenant: “Unless your agreement says otherwise, the premises must be kept in at least the state of repair shown in the schedule of condition.”
These provisions conceal three major problems, not confined to pubs, but which can arise whenever parties to a tenancy seek to use a schedule to record a state of repair. The guidance does not mention the problems but, given that many pub tenants enter into tenancies without proper professional advice (and will ignore the stipulation in Regulation 13 to “obtain the advice of a qualified surveyor with professional experience relating to tied pubs”), there may be a case for revising the guidance.
Sufficiency of the schedule
A document which simply “summarises the state of repair of the premises” may be said to be a triumph of hope over experience. In what detail should the schedule reflect the state of repair? If it simply remarks “decoration in fair condition” (as many do), the potential for dispute is clear.
Even if the schedule is accompanied by photographs, which would be good practice, it is unlikely that the entire condition will be recorded.
Then, what if a problem is latent rather than patent? For example, dry rot below floorboards. If this is not recorded (it usually would not be, because surveyors hardly ever carry out intrusive inspections), then the correct but unpalatable conclusion would be the tenant is responsible for remedial work.
Compliance with the schedule
Suppose the schedule records that the floor in the bar is uneven. During the tenancy, the floor becomes worse. Is the tenant liable to remedy the extent to which the floor has become worse? How in practice is it supposed to do that without remedying the original defect?
Problems of this nature are not difficult to think of – but are almost always ignored when drawing up the schedule, because the tenant is entering into a new venture, and it seems inappropriate to dwell on how things might go wrong.
This sort of problem makes schedules of condition almost worse than useless. As far as the tenant is concerned, better to have a term in the tenancy agreement to the effect that the tenant is not liable to put the premises into any better condition than they were at the date of grant. This puts the onus on the landlord to prove the premises were in X condition and are now in Y condition – something they will often not be able to do.
Keeping up with the schedule
Recall that the guidance says that unless the tenancy agreement says otherwise, the premises must be kept in at least the state of repair shown in the schedule of condition. That suggests that the pub tenant is under a fairly stringent continuous repairing obligation.
In practice, this is not the approach that is commonly applied. Landlords rarely bother with dilapidations until the end of the term, for obvious reasons: the operation of the tenant’s business will be incompatible with workmen constantly attending to ensure that the premises never fall out of repair. The landlord’s interests usually align with the tenant’s, in ensuring that the tenant can run a successful business without interruption.
Concluding thoughts
Schedules of condition sound like a good idea: they are apparently fair, because they purport to limit the tenant’s liability and sidestep the argument which would otherwise arise as to what initial repairs should be carried out, and at whose expense. Moreover, they seem a good solution for tired premises which neither party is really interested in spending serious money remedying.
In practice, however, they rarely do the job they were intended to do. For the most part, this is because they are left to the last minute. The problems they are capable of generating are left out of account and the surveying expertise necessary to do a proper job does not seem a worthwhile expense at the time.
The Pubs Code Adjudicator needs no lessons on supplementing the excellent advice available – but there does seem to be a valuable role for RICS in spreading the word, to tenants – not merely of pubs, but of other premises where this device is used – that schedules of condition are not the panacea they at first appear.
Another element of the guidance might complicate matters in an unintended and possibly tenant-friendly way. In the absence of an express provision to review the schedule of condition, the pub owner must update it (among other things) at least six months before the end of the agreement. As the default obligation is to keep premises “in at least the state of repair shown in the schedule of condition”, and not the “schedule of condition as at commencement date of the tenancy” this could reduce the burden on the tenant if the condition has worsened since the date of the grant.
Guy Fetherstonhaugh KC and Joe Ollech are barristers at Falcon Chambers
