Three Key Points a Commercial Tenant Should Know About a FRI Lease

Summary

• Under a full repairing and insuring lease, the commercial tenant bears the cost and responsibility for repairing and insuring the demised premises, while the landlord retains responsibility for areas outside the demise, such as structure, external parts and shared areas.
• The standard of repair required is typically “good and substantial repair and condition,” and failing to meet this standard throughout the lease term can result in a dilapidations bill at the end of the lease, even for damage the tenant did not cause.
• Although the landlord arranges the insurance, the tenant pays for it, and where damage is not covered by insurance and the lease does not specify cost-sharing arrangements, the repair obligation falls to the tenant by default.
• This article is a plain-English guide to full repairing and insuring leases for commercial tenants in the United Kingdom, written by LegalVision’s business lawyers.
• LegalVision specialises in advising clients on commercial leases, property obligations and landlord and tenant law in the UK.

Tips for Businesses

Before signing a FRI lease, get a schedule of condition prepared and attached to the lease so your repair obligations are limited to the state of the premises at the start of the term. Check whether the lease distinguishes between repair and condition, as the latter sets a higher standard. Clarify in the lease how uninsured damage will be handled to avoid disputes at the end of the term.

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On this page

• FRI Lease Key Points
• 1. Tenant Maintenance Responsibilities
• 2. FRI Lease Insurance
• 3. Repair Standard 
• 4. Protecting Yourself With a Schedule of Condition
• Key Takeaways
• Frequently Asked Questions

A full repairing and insuring lease is a commercial lease structure that transfers repair, maintenance and insurance obligations from the landlord to the tenant under English property law. The Landlord and Tenant Act 1954 governs the broader framework of commercial tenancies in England and Wales, while the specific allocation of repairing duties is determined by the lease itself. Most commercial leases in the UK are structured on FRI terms, meaning tenants carry the financial and practical burden of keeping the premises in good repair throughout the term. This article will explain three key points you need to know about a full repairing and insuring commercial lease, such as what to look out for in the lease terms.

FRI Lease Key Points

A complete Full Repair and Insuring commercial lease (FRI lease) is where the landlord passes the repair, maintenance, and insurance costs to the commercial tenant and the responsibility for carrying out repairs. 

Below are three key points to help you understand a full repairing and insuring lease.

1. Tenant Maintenance Responsibilities

While a FRI lease is one where you, as the commercial tenant, have liability and cost responsibility for repairs and insurance for the business premises, the landlord still has some duties. You are responsible for repairing the part of the premises demised to you in your lease. The landlord will have to repair areas of the property, not demised to you in your commercial lease, such as if you rent part of the property. 

This can include:

• structure;
• external parts; and
• car parking areas. 

Your landlord must also arrange the insurance, even though you pay for it. They may charge you insurance rent to recover this.

Therefore, the lease agreement must clarify each party’s responsibilities. Otherwise, there is potential for disagreement. Also, as a commercial tenant, you will want to be sure you can meet the costs of your responsibilities before you enter the lease, and you should get legal advice about this.

2. FRI Lease Insurance

As established, you are responsible for paying insurance for your commercial lease, but your landlord must arrange it. 

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However, you should note some other key points about insurance in a full repairing and insuring lease. These are as follows:

• where insurance covers the repairs needed for damage to your commercial premises, you do not need to fix them;
• there are some repairs insurance will not cover, so your lease agreement may say how the landlord will share the cost of these; and
• where a lease agreement does not specify repairs not covered by insurance, you, as the tenant, are responsible.

3. Repair Standard 

Whilst you, as a tenant, are responsible for the costs of repairs in your commercial lease, you need to know the standard of repair your landlord expects. This will generally be a ‘good and substantial repair and condition ‘or ‘good and substantial repair’. 

If you fail to do this, you could find that at the end of a full repairing and insuring lease, you could receive a bill for what you did not bring to the standard the landlord requires as a breach of the lease even though you did not carry out the damage. 

However, defects are often not included as something you need to repair, but you should clarify this in the lease agreement.

A good and substantial repair standard will be a personal one to the lease and depends on many factors of the commercial premises. However, where the standard of repair refers to ‘condition’, your repair standard is higher. This means that if, for example, condensation creates damage to the business premises, you may need to repair it.

4. Protecting Yourself With a Schedule of Condition

Before you sign an FRI lease, you should consider negotiating a schedule of condition.

A schedule of condition is a photographic and written record of the state of the premises at the start of your lease. Once agreed and attached to the lease, it limits your repairing obligation. You are only required to return the premises in the same condition as recorded at the outset, not in a better condition than when you took it.

Without a schedule of condition, you could face a dilapidations claim at the end of your lease for defects that existed before you moved in. Landlords serve a terminal schedule of dilapidations setting out the repairs they say you failed to carry out. These claims can run to significant sums.

Commissioning a building survey before you sign is also advisable. It identifies existing defects and gives you a clear picture of what you are taking on before you commit to the lease terms.

Key Takeaways

Most commercial leases are FRI leases. You need to comprehend what things you are responsible for maintaining and repairing, which will usually be the area demised to you in the lease. You should also understand the standard of repairs your landlord requires and points about insurance.

If you need help understanding FRI leases, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced leasing lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.

Frequently Asked Questions