FRI leases in practice

A Full Repairing and Insuring Lease (FRI) lease is a type of lease agreement found in most commercial property leases when a tenant is taking on a lease of the whole property.

An FRI lease requires the tenant to cover all costs relating to the upkeep and repair of the property as well as cover the cost of the whole of the insurance premiums.

Lease of whole vs lease of part

FRI leases are typically only used when the tenant is taking occupation of the whole of the property. It would not be fair for a tenant who is occupying part of a property to have to maintain/ repair the whole of the building nor cover the insurance premiums for the whole of the property without receiving contributions from other tenants.

Repairing obligations

Under an FRI lease the tenant is responsible for all repairs to the property including structural repairs and inherent defects. The tenant is also responsible for maintaining the property in good condition and complying with all relevant building codes and regulations.

If you are planning on taking a lease of a commercial property it may be worth organising for a structural / building survey to be carried out at the property. A structural / building survey can confirm if there are any problem areas within the property and / or give guidance on what immediate and future works are required.

If the survey highlights areas that need to be repaired, then you could request that the Landlord completes such works pre or post completion to bring the property up to a good standard. Alternatively, you could limit the repairing obligation by stating that the tenant will not be responsible for any inherent defects.

You could also limit your repairing obligation by requesting a Schedule of Condition be annexed to the lease. A Schedule of Condition is a form of photographic and written evidence that documents the state of the property at the time the lease is granted to a tenant.

By including a Schedule of Condition in the lease a tenant’s repairing obligation is limited to only putting the property back into as good a state as is evidenced in a Schedule. At the end of the term, or on sooner determination, the landlord and tenant can review the Schedule and determine if any repair works need doing.

Insuring

In most commercial property leases the Landlord will be responsible for insuring the building. The tenant must then repay or contribute towards the gross cost of the insurance premium either on demand from the Landlord or within a certain amount of days.

It may be beneficial to request confirmation from the Landlord on the previous premiums payable in the last 3 years. By obtaining this information you can consider how much you will need to budget the building insurance in the coming years.

For further comfort you could request that the Landlord obtains insurance at a fair and competitive rate and insert this provision into the lease. This could mean that the Landlord does not go for either the lowest or highest premium.