Tenants beware - FRI Leases!

A full repairing and insuring lease (“FRI Lease”) is a Lease which places the responsibility for all costs of repair and insurance of the let Property with the Tenant. 

For a Landlord, an FRI Lease is generally the preferred option as it ensures the Tenant is on the hook for all repair and insurance costs. An FRI Lease also ensures that, when the Lease comes to an end, the Tenant is required to restore the Property to a fully-repaired state. 

A lot of prospective and inexperienced Tenants, Tech start-ups for example, mistakenly believe that they are only required to give back the Property at the end of the Lease in the same condition that it was in at the start of the Lease. This is not the case! By entering into an FRI Lease, the Tenant is taking on absolute responsibility for all repairs irrespective of the condition of the Property at the time they took the Lease. 

The advice to prospective Tenants is simple: do not enter into an FRI Lease unless you are satisfied with the condition of the Property. 

If there are any doubts, you should consider commissioning a survey and, if the survey highlights defects or disrepair, re-negotiate! Surveys are useful bargaining tools and provide fairly conclusive evidence of the state and condition of the Property. Therefore, if a survey does highlight disrepair, Landlords may well agree to limit your repairing obligations. 

The common method for limiting a Tenant’s repair obligations is by a ‘Schedule of Condition’. This is essentially a surveyor’s summary with photographs showing the state of repair and condition of the Property. The Schedule acts to limit the Tenant’s repair liability in the Lease and ensures that the Tenant is not required to put the Property into any better state of repair and condition that as evidenced by the Schedule. A lot of prospective Tenants may think that the time and cost of a survey at the outset is overkill and too expensive but, this relatively modest expense and minor tweak to the Lease at the outset, can save you thousands on a potential dilapidations claim at the end of the Lease. 

Another useful tip to prospective Tenants is to know exactly the extent of the Property you are taking a Lease of. Is it a Lease of whole? If so, all repair costs for the structure, windows and roof become your responsibility and you are required to keep the Property (and hand it back) in a fully-repaired state. If a Lease of part (as is generally the case for Tech tenants taking office premises) and only the internal skin of a larger building is demised, repair and reinstatement costs at the end of the Lease will still include redecoration and repair of floor finishes, ceiling tiles, internal doors, heating and water equipment and other plant and machinery that soley serve the Property, as well as the removal of any alterations etc. 

Be aware that an FRI Lease places the repairing obligations on you as Tenant throughout the term of the Lease and even once the Lease has ended. Almost all Landlords will inspect the Property in the run up to the Lease ending and a Schedule of Dilapidations is likely to follow. 

A Schedule of Dilapidations sets out the elements of disrepair, the cost of carrying out the repair and reinstatement works and often a calculation for lost rent for the period in which the repair works are carried out. Most of the time, Landlords prefer Tenants to pay them in lieu of the repairs and it is not uncommon for the payment sought to be far higher than envisaged or thought reasonable. 

A great many Tenants get into dispute with Landlords on the subject of dilapidations and often professional advice is required to come to a formal arrangement. Such professional advice generally involves lawyers and surveyors and can be costly (on top, of course, of the Dilapidations payment in lieu). 

The prudent Tenant who has digested this article will therefore consider repairs and the FRI Lease at the beginning to ensure they – hopefully – aren’t caught out at the end.