What is an inventory?
The inventory is a catalogue of the property and its' contents. A schedule of condition is a record of condition. Most commonly the two are combined into one report and are called either the inventory or schedule of condition.

The inventory/schedule of condition has several functions:

* it is a catalogue of the property being let
* it records the condition of the property and any items that are included in the tenancy
* it forms part of the legally binding contract that is set out in the tenancy agreement between the tenant and the landlord.

Why it’s important to prepare one?
For years when it comes to inventories, landlords have got away with scribbling a few notes on a bit of paper about the condition of their property. The general principle being that accurate records were not needed. This was because as a landlord you were both ‘judge and jury’ and if and what part of the deposit was withheld to cover the costs of repair and cleaning. This is not to say that tenants had no remedies if they felt aggrieved with the decision. Under the pre April 6 2007 system they were able to take the landlord to court if they thought that they were unreasonably withholding their deposit. The judge would then decide on the merits of their claim. However, the ‘hassle’ and inconvenience to the tenant of carrying this through meant that in most cases tenants do not take matters any further, especially where the sums involved were small.

Things will never be the same again
The Tenancy Deposit Scheme (TDS) will change this cosy amateur approach in several important ways:

1. No longer will the landlord have the benefit of controlling the monies from the outset

2. Because of point 1 many tenants are likely to feel emboldened to take on the landlord if they think they even have a chance of winning the ar gument. There is likely to be a large jump in the number of cases where the tenant disputes the withholding of all or part of their deposit

3. The inventory will become far more important for many landlords as it is the key document in proving the condition of the property before a tenant moved in

4. The way of assessing disputes will now change. Rather than matters being resolved through the courts, most will be decided by independent arbitrators. Arbitration is generally seen as less adversarial and fixed by legal procedure than the courts and this is likely to result in outcomes that differ from those that occur currently.

Message to landlords
The message to landlords is clear. No longer will they be ‘judge and jury’. The result is that the number of contested deposits is likely to increase dramatically. Therefore it is more important than ever to have a carefully prepared inventory at ‘check in’ and that at ‘check out’ an accurate record of the properties condition is made. Otherwise they could end up signific antly out of pocket. Landlords should look out for the TDS compliant inventory coming soon to the registered users of www.propertyhawk.co.uk

Should I prepare it myself?
The vast majority of landlords that manage their own properties do their own inventory. The reality is it isn’t ‘rocket science’. It is just a case of being thorough and methodical. Having a well set out pro-forma inventory form such as the TDS compliant one available on www.propertyhawk.co.uk helps in the preparation process by clearly setting out the key areas that need to be covered.

It is important to note that carrying out a proper inventory of your property isn’t quick. The good news is that having carried out the process once, it should be easier and quicker the next time. Landlords should always allow a good hour or so depending on the size of the property to go round (this includes the outside if the property has a garden). If you try and do it all in 10 minutes, then th e chances are it wont be worth the paper it is printed on and if there is a dispute you will have great difficulty proving your case to a judge or arbitrator. It has been estimated by a lawyer who acts regularly for landlords that currently fewer than 1 in 50 inventories are of an adequate standard to ‘stand up’ in court.

Landlords however do have an option not to prepare the inventory themselves.

There are two ways of avoiding the preparation process.

Firstly, if the property is fully managed by an agent then inventory taking and the subsequent ‘check out’ should be carried out by them as one of their management duties. This obviously will save you time. It will also mean that if there are problems with the condition or cleanliness of the property; the agent should rectify these and use the deposit monies to cover this expense before handing the balance back to the tenant.

One thing to be aware of when employing an agent is that legally they act as the landlords’ representative. This means that whilst t hey may hold the deposit monies, legally it is still the responsibility of the landlord and if the agent goes bust or runs off with the money, the landlord still has to repay the tenant their deposit back. Tenants who take legal action to recover their monies have been directed to take it against the landlord because judges have ruled that there is no privity of contract between the agent and tenant.

This is why it is so important that landlords should always ensure that any letting agent holds their deposits in a trust account or is a member of a suitable bonded scheme such as the one run by the Association of Residential Letting Agents (ARLA). In this way should the agent go bust the deposit monies will always be available to the landlord to repay the tenant with.

The second way to get around having to prepare an inventory is to employ a specialist Inventory Clerk. These individuals carry out the whole process for you; they can also do the mid tenancy ins pection as well as the final ‘check out’. The downside to this service is that it is not cheap. The costs of a check in and check out run to about £100-140 each for a standard 2 bed flat. These fees do vary, depending on the size of the property and area of the country (London will be the most expensive).

For this you will have the piece of mind that the inventory has been done professionally and comprehensively. It is possible to pass on the cost of this service to the tenants. This is quite common practice where an agent is used. However there are no hard and fast rules and the agent could equally pass on the cost of this service to the landlord. It is therefore important to be clear from the outset about what their letting and management fees include before signing up for their service.

How to prepare an inventory
The most essential thing about preparing an inventory is to adopt a system that is simple so that it is easily remembered and replicated. This will ensure that you achieve consistent results. In develo ping your system ensure that the inventory it produces is:

* Ordered - this way when preparing it you are less likely to miss things and also that anyone reading it can easily follow the contents.
* Comprehensive - remember this will be the document of reference should a dispute a rise and could potentially end up in front of the judge
* Verifiable - its accuracy can be agreed by anyone with few or nil additions or alterations.
* Written in Plain English - so it is easy to read and understand. This will help should the case go to court when a clearly written unambiguous report will have more credibility than one where a tenant could claim that they were unsure what they were signing. This shouldn’t be a defence but judges are only human.

The best way of producing inventories that achieve the key points given above is to divide any property into a series of rooms. This is largely straight forward; for instance most properties will have a kitchen, lounge, bedrooms, etc. However you will also have to categorise some parts of the property as a room such as hallways, a conservatory, gardens, garages, etc. Once you have established a list of these rooms; it is then a case of subdividing them into a series of component parts. These component parts once categorised will build up an overall framework.

The standard component parts used in the Property Hawk inventory are as follows:

* Doors
* Floor
* Walls
* Ceiling
* Light fittings
* Wood work
* Appliances
* Windows
* Heating
* Electricals
* Furnishings

As well as the standard component parts each room may have individual parts specific to that room; these must also be noted down. Once all these parts have been recorded, the next stage is to record items that are not fixtures or fittings. This is particularly important and time consuming where a property is furnished. In this case it will be necessary to note down ever y item supplied. Once this is done; you will have a complete inventory.

The next stage is to complete what is known as the schedule of condition. This can be carried out concurrently with the inventory. The object of the process is to note down the condition of each component part.

For example, in the case of the lounge under the component part of doors you would record the fact that there are two doors, newly white painted with chrome handles. This part of the process is particularly important because as I go on to discuss later it is disputes over the condition of items and what is ‘fair wear and tear’ that are the most common. This aspect is far more difficult to prove than the removal of an item and it is fair to say that judges will often side with the tenant unless the landlord can prove conclusively that it was new or in good condition. This highlights the importance of retaining receipts not only for tax purposes but also in case of a disagreeme nt with your tenant resulting in arbitration or court action where you will then have to prove the condition of your property at ‘handover’.

Many inventory clerks use a series of abbreviations to speed up the process. This is fine providing that a full list of terms accompanying the inventory. Whilst abbreviations are useful they can also be confusing for the tenant who will need to verify the report once it is completed.

The important things to ensure are:

* That there is an adequate description of each item so that they can be verified
* That an accurate statement of condition accompanies each component item

You should avoid at all costs ambiguous language such as ‘spotlessly clean’ or emotive language so as ‘lovely fireplace’. Keep descriptions brief and factual.

If you follow these guidelines then you should end up with a comprehensive written inventory and schedule of condition that will then cover you for all eventualities.

Photographic & video evidence vs written inven tories
It might appear that with the arrival of cameras on mobile phones and cheap video technology that the use of a written inventory has become somewhat outdated. Surely now it’s a case of just snapping a few pictures of the condition of your investment property; after all ‘pictures speak louder than a thousand words’.

Unfortunately when it comes to it things aren’t that simple. For a start to form part of the inventory for evidential purposes photographs will need to be conclusively proved and agreed by all parties at the outset. This has to be done by landlord/agent and tenants signing two copies of all items (each keeps one set) or each party signing separate full sets, which are then exchanged on completion (grant of letting)- just like conveyance/duplicate or lease/counterpart. Alternatively it is possible to incorporate sets into the tenancy agreement. In this case, you should include an extra clause reading something like, "The Landlord and the Tenan t agree that the attached [photographs][Schedules] show the state and condition of the [property][premises] as at the commencement of the tenancy."

All of this does not sound too problematic. This is until you consider one of the practical difficulties involved with photographic evidence. Consider for a moment how many individual photographs would be required to comprehensively cover a whole property. Even for a relatively small two bed flat the number could easily stretch into the hundreds. The tenant is then faced with the incredibly laborious process of checking the veracity of each pair of photos and countersigning them all on move-in day. On top of this there are the practical difficulties of photos & video being sufficiently clear to show things like scuff marks or dirt. Natural lighting will generally have to be very good for these to show. The trouble is, unless the natural light is good, the flash usually bleaches out images, along with any 'nuances' of grime. If you then have to review each photo and then adjust your ba lance, exposure etc, you'll be there for hours - I speak from experience. Also you will need to make sure that there is a hard copy date on each of the photos which are important in verifying when the photos were taken. Otherwise the tenant could use a defence that the photos were taken at a time prior to their occupation.

Legally both photographic and video evidence is admissible in court. One of the difficulties of using them is establishing their authenticity i.e. when they were taken and that they have not been doctored. Therefore, where video or an electronic copy of a collection of photographs is taken on a CD or DVD then you are advised to write this on to a CD ROM. These discs cannot be rewritten or doctored with once written which is important when verifying the evidence. Ensure that where a hard copy is made that you give the tenant one and get them to sign to confirm that they have received it and agree with the contents.

The upshot is that ph otographic and video evidence may not be the panacea that itinitially may suggest. This probably explains why its’ adoption by landlords and agents has only been limited to date. The reality is that landlords should concentrate on ensuring an accurate written is prepared and signed by all parties. Photographic evidence where it is used is probably best used selectively and in conjunction with a detailed written inventory to support and highlight its’ contents.

The ‘check in’
The check in occurs at the point that the tenancy has been agreed and the landlord is in a position to hand over the keys. It is the process by where the tenant and landlord / agent who should have a fully prepared inventory / statement of condition will need to agree the cleanliness of the property as well as confirm the details of the inventory. The process involves a tour of the property. Where there are discrepancies between the original inventory then these should be noted down. Once an acceptable copy has been drawn up the landlord and tenant m ust sign and date it to acknowledge that the document is a fair representation of the facts. The inventory then forms part of the terms of the tenancy agreement. When photos are involved they need to be signed and dated or referred to as a clause in the tenancy agreement. (see previous sections).

Mid term inspection
The mid term inspection is one carried out by the landlord or their agent approximately halfway through a tenancy to ensure that the property is being maintained. Generally it is a short visit and the landlord or agent should use the agreed inventory to cross check the property that an unreasonable amount of damage has not occurred and that the property is being cleaned. It can also be a useful way of the landlord finding out about any small problems with the property which the tenant has failed to report. In this way the landlords should be in a position to take pre-emptive action to tackle an issue before it gets too serious. The first mid term inspection is also a way of the landlord checking on the tenant and making a judgement as to whether they are happy for the tenancy to continue or whether they wish to proceed to issue a section 21 notice requiring possession.

The ‘check out’
This is the final stage of any tenancy and the point when the benefits of having a well prepared inventory become apparent. It may be that many months has elapsed since the start of the tenancy which means unless you are blessed with a photographic memory the original condition of the property at the time of the ‘check in’ is likely to be ‘hazey’ at best. You should arrange to meet the tenant at the property to go through the inventory and check its’ condition at the time that they are ready to move out. Ensure that you allow yourself plenty of time to conduct a thorough inspection. Use a copy of the original inventory to note down any item of damage or cleanliness. Be careful to make accurate and thorough notes as these could form part of your case should a dispute a rise and go to court or arbitration.

Identifying substitute items
I’m afraid it is not uncommon for tenants to swap some of the smaller items of supplied furnishings (curtains, lampshades, pillows, for example) for their own. I don’t have a problem with this as long as the tenant then puts back these items at the end of the tenancy. What you don’t want is that the tenant swaps their ‘rubbish’ with your good stuff. This is why it is so important when preparing the inventory to
fully describe each item, quoting colour size, model and serial numbers where possible
even code mark your items with say a unique indelible mark.

Identifying extra items
Gaining unwanted ‘stuff’ is sometimes more of a problem than loosing items or having them replaced by inferior goods. My experience particularly with students and sharers is that tenants can use moving as an opportunity to discard their unwanted belongings. I’m sure that they think that they are being very generous and if yo u are an avid ‘car booter’ it can provide a continuous supply of delightful ‘bric-a-brac’. I’m not and it is very time consuming and expensive to get rid of items; particularly larger ones such as furniture and appliances. Local authorities will generally take large domestic items away for a small fee of about £15; but why should you have to organise and pay for the removal of somebody else’s rubbish! I did have recently a case where a tenant left their car. Look out in particular for stuff being left in the cellar, attic and garage. These are all convenient hiding places often used by tenants. My advice is, don’t agree the ‘check out’ until the property is ‘completely’ cleared to your satisfaction.

One thing to note is that it is not necessary for the tenant to be present when the ‘check out’ is being compiled. Some landlords or agents actually prefer this to be the case because it allows them to concentrate on taking accurate and unbiased notes without having to answer directly to the tenant. The completed ‘check out’ statemen t can then be posted out to the tenant or a subsequent arrangement can be made to meet them to go through it if there are any areas of disagreement. Otherwise the tenant can post a signed copy of the ‘check out’ statement back. The downside to this two stage approach is that it is more time consuming as it requires that the landlord or agent have to make an additional journey to meet the tenant should there be any disagreement. My advice would always be to agree the ‘check out’ at the property and on the day the tenant moves out. This way you are also more likely to get a signed copy of it back; than if you have to rely on the tenants remembering to post it to you. If the tenant does refuse to sign on the spot insisting on more time to consider the form, then this could be a warning that they will contest your statement. This should prompt you to make sure that your descriptions are completely accurate and that all evidence is gathered and verified.

One thing to note is that it is not necessary for the tenant to be present when the ‘check out’ is being compiled. Some landlords or agents prefer that this to be the case because it allows them to concentrate on taking accurate and unbiased notes without having to answer directly to the tenant. The completed ‘check out’ statement can then be posted out to the tenant or a subsequent arrangement can be made to meet them to go through it if there are any areas of disagreement. Otherwise the tenant can post a signed copy of the ‘check out’ statement back. The downside to this two stage approach is that it is more time consuming as it requires that the landlord or agent have to make an additional journey to meet the tenant should there be any disagreement. My advice would always be to agree the ‘check out’ at the property and on the day the tenant moves out. This way you are also more likely to get a signed copy of it back; than if you have to rely on the tenants remembering to post it to you. If the tenant does refuse to sign on the spot insisting on mo re time to consider the form, then this could be a warning that they will contest your statement. This should prompt you to make sure that your descriptions are completely accurate and that all evidence is gathered and verified.

‘Fair wear & tear’
The most common disagreements at the time of ‘check out’ occur around the topic of what constitutes ‘fair wear and tear’. It’s quite easy to decide on whether a bathroom cabinet is present or the cooker works. What is more difficult and subjective is whether the marks on the bedroom carpet are just a result of several years of use or red wine stains from exuberant parties. There is nothing in statute which defines ‘fair wear and tear’; the concept is too wide ranging to be enshrined in law. The Association of Residential Letting Agents (ARLA) has however produced some useful guidelines for its’ members on what to consider when coming to a view on it. These are:

* The original age, quality and condition of a ny item at commencement of the tenancy
* The average usefull ifespan to value ratio (depreciation) of the item
* The reasonable expected usage of such an item
* The number and type of occupants in the property
* The length of the tenants occupancy

Legally a landlord should not end up, either financially or materially in a better position than he was in at the commencement of the tenancy or than he would have been at the end of the tenancy having allowed for fair wear and tear. It follows therefore (and is an established legal tenet) that a landlord is not entitled to charge his tenants the full cost for having any part of his property, or any fixture or fitting “put back to the condition it was at the start of the tenancy.” This would constitute betterment; appropriate remedies available to the landlord might range from:

* Replacement of the damaged item where it is either severely and extensively damaged beyond economic repair or, its condition makes it unusable
* Repair or cleaning< BR> * Compensation for diminution in inherent value of the item or the shortening of its useful normal lifespan

There is a technique for taking into account fair wear and tear and also avoiding betterment and it is called apportionment. Apportionment is the process of breaking down the costs of ‘fair wear and tear’ into measurable chunks and thereby allowing you to assign a monetary value to items in what can appear to be a very subjective process. It is probably best illustrated by way of some very general examples:

1. Minor damage to an item, a small to medium stain or mark on a carpet or mattress etc – perhaps £15 - £35 e.g. the cost of a “spot” clean or, this amount as the tenant’s contribution to a full clean of the whole item, or as compensation for the diminution. A small to medium size chip or mark, scratch or burn on a kitchen worktop – perhaps £5 - £25. A landlord could of course decide to a purchase a new item, to have a new carpet put down or a new kitchen worktop installed if they wished, but they cannot lawfully charge the tenant for the full cost. The costs should be apportioned and shared between the parties on the principles given above. E.g. cost of new carpet £500 – apportioned £465 to landlord, £35 to tenant.

2. In the rare circumstances where damage ( to the worktop/carpet/mattress/ item etc) is so extensive or severe so as to affect the achievable rent level/lettability or quality of the property the most appropriate remedy might be replacement and to apportion costs according to the age and useful lifespan of the item. Below is an example of how this might be calculated.

(a) Cost of similar replacement carpet/item = £500-00
(b) Actual age of existing carpet/item = 2 years
(c) Average useful lifespan of that type of carpet/item = 10 years
(d) Residual lifespan of carpet/item calculated as (c) less (b) = 8 years
(e) Depreciation of value rate calculated as (a) divided by (c) £50 per year
(f) Reasonable a pportionment cost to tenant calculated as (d) times (e)= £400.00

What happens if there is a disagreement?
Prior to the Tenancy Deposit Scheme (TDS) the landlord or agent holding the deposit would make a deduction to cover the costs of damage and then would refund the balance to the ex-tenants within 10 working days of the final ‘check out’ being completed. The tenant would then either accept the landlords’ decision or take the matter to the county court to recover the contested amount. The TDS has changed this for tenancies created after the 6th April 2007. Refer to the section on the TDS for detailed guidance of what happens now.

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