What is a Full Repair and Insure Lease?
Among the many issues surrounding the leasing of business premises are the minutia of the lease. Amongst its many pages and clauses outlining your obligations and responsibilities you will come across the details of a Full Repair and Insure (FRI) Lease. We look at what this entails and why you should take particular note of its requirements.
A Full Repair and Insure Lease is simply a lease where the tenant bears the full responsibility for repairing and insuring the property. For a landlord a FRI Lease is a good option – they are relieved of the responsibility of maintaining the building and, when the lease comes to an end, the tenant is required to restore the property to its original state. In addition, the tenant will also be required to insure the building. For a tenant, however, a FRI Lease can add a considerable financial burden to monthly outgoings.
What does a FRI Lease cover?
Within the terms of an FRI Lease, full responsibility for the maintenance and repair of the structure of the building as well as its interior and sometimes its exterior is assumed by the tenant. If the building is of modern design and construction, this will not necessarily be an issue.
- However, if the building is more than 20 years old, problems may occur. These could include the risks of:
- Subsidence which may lead to cracks and structural movement
- Problems with the roof area (including leaks which may lead to water ingress), chimney issues or faulty guttering
- Asbestos – its presence or removal
- Damp – either rising, penetrating or condensation
Internal services (such as lifts, heating or cooling systems) and external spaces (such as car parks or landscaped areas).
An FRI Lease may also include the stipulation that the tenant restores the premises, at the end of the lease, to the condition in which it was handed over.
What does this mean for the tenant?
- The two main considerations for the tenant involved with an FRI Lease, therefore, are:
Reinstatement – at the end of the lease, if the tenant has made any alterations to the property, it is their responsibility to restore it to its original condition. It is for this reason that all commercial tenants should commission a Schedule of Condition before signing the lease, to provide documentation as to the property’s condition, allowing any future dilapidations to be mitigated.
- Comprehensive buildings and contents insurance – a detailed policy, arranged by a specialist broker, which covers such eventualities.
Of course, it is possible for a tenant to negotiate variations to a lease to avoid shouldering the full burden of the costs of repairing and insuring the property. A tenant may negotiate that they pay only for the costs of repair for the part of the building they occupy, in the case of multiple-occupancy properties, or they might insist on setting a financial limit on their contribution. Other variations which tenants might consider could include the freedom to alter the premises for their particular needs, to cap any service charges, or the ability to sublet without financial penalties.
What is clear is that a FRI Lease should only be signed by the tenant after consulting with an experienced and competent commercial law advisor. At Eddisons, our team has many years’ experience of dealing with the intricacies of commercial leases and can act on behalf of tenant or landlord when negotiating and preparing a lease.
Written by: Steven Jones on Friday 24/06/2016