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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?
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.
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?
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.