Let’s propose you are in the early stages of negotiating a commercial property lease with your potential landlord’s agent. You receive the Heads of Terms containing a list of terms and conditions that seem straightforward and innocuous, until you come across the abbreviation “FRI.”
What does FRI mean?
FRI stands for “Full Repairing and Insuring” lease. These are particularly common with landlords where the term is 5 years or more, but not exclusive to that term. They apply to all types of premises and the landlord may assert that this term is non-negotiable.
Well, how does it operate?
In a nutshell, an FRI lease places the responsibility on the tenant for repairs (whether to undertake repairs directly, or indirectly, by way of a service charge and contribution to building insurance). It removes the obligations from the landlord, particularly in relation to costs in respect of the premises.
Is there a catch?
The tenant must ensure it has satisfied itself as to the state and condition of the premises prior to completing the lease, otherwise it could be responsible for substantial and unexpected repairs.
Following completion of the lease, the landlord may serve a notice on the tenant to carry out repairs to the premises. Any outstanding repairs may prevent the tenant from exercising a break option or assignment of the lease.
What happens at the end of the term?
Some tenants believe that it must hand the property back to the landlord in the same state of repair that it was, when it took the lease. This is not entirely correct. During the term, if any part of the property falls into disrepair, it is the tenant’s obligation to repair it, whether or not the defect existed before the lease commenced.
Options
There are various options available to a commercial tenant, in order to limit their liability in respect of a FRI lease. One of which might be, an annexation of detailed photographic schedule of condition into the lease.
If you would like to discuss a full repairing and insuring lease agreement, please contact our commercial property department. We have extensive experience acting for both landlords and tenants.