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What is a Full Repairing and Insuring Lease?

What is a Full Repairing and Insuring Lease?

It is common when negotiating a new lease to see the term 'FRI Lease' used by agents in the heads of terms. But what does this phrase actually mean and what obligations does this impose on a tenant?

A full repairing and insuring lease is a specific type of lease which places the responsibility and cost of maintaining and repairing the whole of the property on the tenant (including the interior, exterior and main structure) along with the cost of insuring the property.

State of repair

It is a common misunderstanding that the obligation on the tenant in an FRI lease is to return the property to the landlord in the same state of repair as it was at the outset or in no worse condition. This is not the case. The tenant will take on complete responsibility for repairs regardless of the state and condition of the property at the date of entering into the lease.

There are different standards of repair that a landlord may require and the exact standard required in each case will be set out in the lease itself. It is common however for the required standard to be a 'good and substantial repair and condition'. Any tenant's covenant which requires the tenant to 'keep the property in repair' means that the tenant will be responsible for any damage or repairs even where they did not cause the problem. Some landlords may seek to go even further and impose an obligation on the tenant to not only repair but also rebuild. You should check with your solicitor on this point.

Structural survey

It is essential with an FRI Lease for a tenant to have a full structural survey carried out, including a review of the wiring, pipes and tubes, before entering into the lease. A survey will highlight any areas in need of repair and defects in the property giving the tenant an opportunity to evaluate the cost of the works required and see whether the lease is financially viable. A surveyor will pay specific attention to the roof and foundations (where this forms part of the demised property) as these can be particularly expensive to repair.

Following a survey of the property which highlights areas in need of repair, if the tenant wishes to proceed with the lease, what are some of the options for the tenant to negotiate with the landlord?

  • The tenant may ask the landlord to remedy any defects prior to entering into the lease or within a set time period. If this is the case it may be necessary to enter into a separate Agreement for Lease;
  • If there is a service charge the tenant may seek to limit or place a cap on service charge contributions or contributions towards improvements. They may also want to exclude payments into a sinking fund. This is especially important with a short term lease as money paid into a sinking fund is normally non-recoverable at the end of the lease;
  • If substantial outlay is required to bring the property up to standard the tenant could discuss with the landlord a rent-free period at the outset of the lease. The rationale being that the money the tenant would save on paying rent during this period would be directed towards the necessary repairs;
  • In light of the necessary repairs, if the tenant did not feel the condition of the property warrants the rent requested by the landlord they could consider negotiating a lower starting rent for a set period whilst the works are being carried out;
  • The tenant and the landlord may agree to include a photographic Schedule of Condition in the lease. This provides a record of the condition of the property at the outset of the lease and fixes the tenants obligation removing the need to hand the property back in a better state than as evidenced by the schedule;
  • The tenant may wish to discuss with the landlord a lease which places only internal repairing liability on the tenant with the landlord retaining responsibility for the exterior elements and main structure.

More information

Whether you are a Landlord or Tenant Pinney Talfourd are experts in advising on commercial leases and leasehold repairing obligations. Contact our Commercial Property department for further information.

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