Entry and exit condition reports - spend the time getting them right

As solicitors for the REIQ Professional Indemnity Insurance Scheme (underwritten by CGU Insurance and brokered by Aon Risk Services), we regularly encounter claims against residential property managers where their alleged negligent management of a property has resulted in damage to the property and subsequent loss by a Lessor client.

These claims prove time and time again that thorough and accurate entry and exit condition reports are central to good property management and risk management.

Entry Condition Reports

An entry condition report is required by law under section 65 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (RTRA Act). Section 65(2) of the RTRA Act specifically requires that on or before the day the tenant occupies the premises under the agreement:

• the Lessor or property manager prepare and sign (in the approved form) an entry condition report (ECR) for the premises and any inclusions; and
• give a copy of the signed ECR to the tenant.

Section 65(3) of the RTRA Act provides that the tenant must, within seven days after the tenant occupies the premises under the agreement:

• sign a copy of the ECR; and
• return the signed copy of the ECR to the Lessor or property manager, marked in an appropriate way showing the parts of the report the tenant disagrees with.

If the Lessor or property manager do not provide a copy of the signed ECR to the tenant before the tenant occupies the property, the tenant has seven days to comply with the obligations under s 65(3) of the RTRA Act once they receive a copy of the signed ECR.[1]

If the tenant returns a signed copy of the ECR, the Lessor or property manager must make a copy and return it to the tenant within 14 days.[2] The Lessor or property manager must also keep a copy of the ECR for at least one year after the agreement ends.[3]

While section 65 of the RTRA Act sets out the legislative requirements for an ECR, property managers should be mindful of the tenant's obligations under section 188(4) of the RTRA Act when completing an ECR.

Section 188(4) of the RTRA Act provides that at the end of a tenancy, the tenant must leave the premises and inclusions, as far as possible, in the same condition they were in at the start of the tenancy, fair wear and tear excepted. Section 188(4) of the RTRA Act is incorporated into Clause 37 of the Form 18a General Tenancy Agreement (GTA).

Accordingly, it is imperative that an ECR provide a thorough and accurate description of the condition of the premises and any inclusions at the start of a tenancy. When preparing an ECR, property managers should assume that they will need to rely upon it at the end of the tenancy in support of an Application in the Queensland Civil and Administrative Tribunal (QCAT).

It is therefore crucial that property managers ensure that the entry condition inspection is not simply a cursory walk through of the property. In addition to indicating whether an item is 'clean, undamaged and working' in the ECR, property managers should include specific comments about the general condition of items.

Simply recording that the property is in a good or reasonable condition, or that the property is clean and tidy, will be of little assistance in determining a dispute in QCAT.

Property managers should also ensure that a new ECR is prepared for each tenancy and should not reuse the previous ECR or convert the exit condition report completed at the end of the previous tenancy. Whilst this recommendation may seem obvious to most property managers, it is a practice that we still see when defending claims against property managers for alleged negligent management of a property.

If a property manager identifies any safety issues during the entry condition inspection (eg loose or rotten stair treads), they should advise the Lessor in writing and seek further instructions regarding any necessary repairs and maintenance, and whether the repairs and maintenance ought to be completed prior to the commencement of the tenancy.

We also recommend that property managers provide their Lessor clients with a copy of the ECR for each tenancy, whether the tenant has completed the ECR or not. While this is not a legislative requirement, it is extremely difficult for property managers to advise their Lessor clients as to whether repair or maintenance issues amount to damage to the property or fair wear and tear if an ECR was not provided to the Lessor clients at the start of the tenancy.

Any photographs of the condition of the property that are taken during an entry condition inspection, including any repair or maintenance issues identified during the inspection, should be preserved on file forming part of the ECR and copies sent to the Lessor client along with the ECR.

Exit Condition Reports

The proper completion of an exit condition report at the end of each tenancy is often overlooked by property managers. A properly completed exit condition report should be compared to the ECR for the tenancy to ensure that the property is left in the same condition it was in at the start of the tenancy, fair wear and tear excepted.

In accordance with s 66(1) of the RTRA Act, the tenant must prepare and sign an exit condition report (in the approved form), which must be given to the Lessor or property manager as soon as practicable after the agreement ends.

Section 66(2) of the RTRA Act provides that the Lessor or property manager must, within three (3) business days after receiving the exit condition report, sign and return a copy of the exit condition report to the tenant's forwarding address, marked in an appropriate way showing the parts of the report the Lessor or property manager disagrees with. The Lessor or property manager must also keep a copy of the exit condition report for at least one (1) year after the agreement ends.[4]

We also recommend that property managers provide their Lessor clients with a copy of the exit condition report for each tenancy. This will ensure that the Lessor client is aware of the condition of the property at the start and the end of every tenancy.

Conclusion

While the RTRA Act sets out the minimum standards required of property managers, best practice dictates that property managers have comprehensive systems in place to ensure that they fulfil their obligations to their Lessor clients.

Entry and exit inspections may quickly become a familiar habit for property managers and the importance of keeping detailed reports of each inspection may seem trivial.

However, property managers must remember that thorough inspections are not only essential for complying with legislative requirements, they may also prove an invaluable risk management tool for determining disputes which might arise regarding the condition of the property.

References

[1] Section 65(4) of the RTRA Act.

[2] Ibid s 65(5).

[3] Ibid s 65(6).

[4] Ibid s 66(3).

This story was first published on 14 July 2021 and has been updated.