We describe the conditional and unconditional dynamics of two coupled quantum dots when one dot is subjected to a measurement of its occupation number by coupling it to a third readout dot via the Coulomb interaction. The readout dot is coupled to source and drain leads under weak bias, and a tunnel current flows through a single bound state when energetically allowed. The occupation of the quantum dot near the readout dot shifts the bound state of the readout dot from a low conducting state to a high conducting state. The measurement is made by continuously monitoring the tunnel current through the readout dot. We show that there is a difference between the time scale for the measurement-induced decoherence between the localized states of the dots, and the time scale on which the system becomes localized due to the measurement.