When was the last time you were received a detailed condition report?

Condition Reports: Doing Away with Damage Disputes

Leasing commercial property can be risky for both landlords and tenants alike without the right paperwork in place. One of the most important items in a lease agreement paper trail is the Condition Report. Property managers are required to ensure a Condition Report is completed just prior to a new lease beginning.

What is a Condition Report?

Essentially a Condition Report is a comprehensive list of any existing damage or issues in a property. The property manager overseeing the lease has the incoming tenant carry out a full inspection of the property then list all existing or potential issues that they can see. Next the landlord goes over the report to ensure they agree and are aware of the issues cited by the incoming tenant. Once both parties agree with the Condition Report contents, they each provide formal sign-off and the report becomes a legally binding document.

Purpose of a Condition Report

A comprehensive condition report provides protection for both parties:

• Tenants are protected against being held legally responsible for damage that may have been caused by previous tenants or general wear and tear to the property. In this way, a tenant won’t run the risk of being liable for damage they didn’t cause. A Condition Report also ensures a new tenant is fully aware of any potential issues before leasing a property so they know exactly what they are up for.

• Landlords are protected by having a written record of the state of repair in which their property is at the time of the incoming tenancy. Should fresh damage arise during the new lease, the Condition Report acts as proof that the tenant is responsible. From there, landlords can hold the tenant to their obligation to reinstate the property to its original condition

In summary, an Entry Condition Report is intended to reduce conflict between landlord and tenant regarding the condition of the commercial property throughout the tenancy and particularly upon its expiry.

Condition Reports in Action

One of the best ways to understand how a Condition Report works is to consider a commercial tenancy case study. Suppose a tenant commences their new lease but the property manager does not facilitate completion of an Entry Condition Report. In the course of fitting out the property for their business purposes, the tenant moves walls and cuts holes in concrete to accommodate their equipment. The lease agreement outlines that the tenant can complete a fit-out of the premises but that the property must be reinstated to its original condition at the end of the lease.

Fast-forward to the end of the lease and the landlord requests a copy of the Vacate Condition Report. This shows that there is a big hole in the concrete and office zones have not been returned to their original condition. Naturally, the landlord is unhappy and has the property manager get a quote to complete all necessary repairs. These are estimated to fall within several hundreds of thousands of dollars. The landlord passes the repairs quote onto the tenant who disputes that the property has not been returned to its original condition.

With no Condition Report to refer too, the landlord has no basis or proof on which to demand the tenant attend to all necessary repairs. Therefore financial onus for the repairs falls on the landlord rather than on the outgoing tenant.