A full repairing and insuring lease (FRI lease) makes the tenant responsible, directly or through a service charge, for repairing the premises and for the cost of insuring them. It is the most common structure for commercial property in England and Wales, and it can be perfectly reasonable, but only if you understand what you are taking on before you sign. Once the lease is completed, your negotiating leverage has largely gone.
This checklist is designed for the heads of terms and lease negotiation stage. Work through it with your solicitor and a RICS chartered surveyor, and you will know whether the deal is right, what to change, and what it could cost you at the end.
What a full repairing and insuring lease means in practice
In a typical FRI lease of a whole building, the tenant covenants to repair the structure, roof, exterior, interior and services, and to reimburse the landlord for the buildings insurance premium. In a multi-let building the same effect is usually achieved through a service charge, with the tenant also responsible for the interior of its own unit.
“Repair” is judged against the lease, not against the condition of the building on the day you moved in, unless the lease says otherwise.
The pre-signing checklist
1. Understand that “keep in repair” can mean “put in repair”
A covenant to keep premises in repair has long been interpreted as requiring the tenant to put them into repair first if they are in disrepair at the start (the principle in Proudfoot v Hart, 1890). If the roof leaks on day one, you could be liable to fix it, and to hand it back in repair at the end of the term. This is the single most misunderstood point in commercial leasing.
2. Commission a survey before you commit
Instruct a chartered surveyor who is familiar with the property type to inspect before you sign. You need to know the condition of the roof, walls, windows, services and drainage, what is likely to need attention during the term, and roughly what it might cost. Most business owners think about operations first and premises second; before signing, reverse that order.
3. Agree a schedule of condition and write it into the lease
A schedule of condition survey records the state of the premises at the start of the lease. If the lease limits your repairing obligation to that recorded condition, you should not have to improve the building beyond it. Our guide what is a schedule of condition explains how it works and the drafting pitfalls to avoid.
4. Ask for a dilapidations liability assessment
A dilapidations liability assessment estimates what the lease could cost you in repairs, decoration and reinstatement over the term and at exit. It turns a legal obligation into a number you can budget for and negotiate against. We offer it as a separate service, and our dilapidations surveyor team can prepare one before you sign.
5. Negotiate the scope of the repairing covenant
Everything is negotiable before completion. Depending on the condition of the building, you might ask to:
- Exclude elements that are already in poor condition, such as the roof or a failing boundary wall.
- Limit liability to the condition shown in the schedule of condition.
- Exclude fair wear and tear.
- Agree a cap on your repairing, decorating or reinstatement costs.
6. Check the insurance provisions
The landlord usually insures and recovers the premium from the tenant. Check what risks are insured, whether the premium is reasonable, who benefits from any commission, what happens if the premises are damaged by an uninsured risk, and whether rent is suspended if the building becomes unusable. Make sure the level of cover protects your interests as well as the landlord’s.
7. Scrutinise the service charge
In a multi-let building, the service charge is where repair costs often reach the tenant. Ask for the last few years’ accounts and budgets, check whether major works are planned, and consider asking for a cap on service charge increases or an exclusion for the cost of remedying defects that existed at the start.
8. Check the length of the term and any break clause
Longer leases give stability but lock you into obligations. A 10-year lease might suit your plans today, but what if trading becomes difficult in year three? A break option gives flexibility, but check the conditions attached. A break that depends on full compliance with the repairing covenant can be almost impossible to exercise on an older building.
9. Find out whether the lease has security of tenure
Business tenancies can have statutory protection under Part II of the Landlord and Tenant Act 1954, including a right to apply for a new tenancy when the lease ends. Landlords and tenants can agree to exclude that protection, but only by following the formal notice and declaration procedure in section 38A. Ask your solicitor which applies and whether you are comfortable with it.
10. Review alterations and reinstatement clauses
If you plan a fit-out, check whether you need consent, whether you will have to remove alterations at the end, and whether the landlord can decide that at the last minute. Reinstatement can be one of the largest items in an end-of-lease claim, so agree it now and record it in a licence for alterations.
11. Model the total cost of occupation
Add rent, business rates, service charge, insurance, repairs, compliance and a realistic exit cost. Make sure your cash flow can absorb unexpected repair bills without putting the business under strain. A lease that looks cheap on rent can be expensive once repairs are factored in.
12. Compare alternatives and match the lease to your business plan
Consider whether an internal repairing lease, a shorter term, or a different building would give a better balance of risk. Think about how the premises fit your growth plans, and whether assignment or subletting rights are wide enough if you need to move.
Who should advise you
Leases are legally binding and often complex. You will normally need:
- A solicitor to advise on the legal terms and negotiate the drafting.
- A RICS chartered surveyor with dilapidations experience to inspect the building, prepare the schedule of condition, review the repairing and reinstatement clauses, and estimate your likely liability.
- Your accountant to consider the cash flow and any dilapidations provision in your accounts; see our guide to dilapidations provision.
After you sign
Signing is the start, not the end. How you manage the premises during the term, keep records, handle alterations and prepare for exit will decide what you pay at the end. We cover that in our separate guide to FRI lease tenant protection.
Frequently asked questions
Is an FRI lease the same as a triple net lease?
The terms are broadly similar in effect, as both pass repair and insurance costs to the tenant, but “full repairing and insuring” is the usual description in the UK. What matters is the wording of your particular lease.
Can I negotiate an FRI lease?
Yes. Repair exclusions, schedules of condition, caps, break clauses and reinstatement terms are all regularly negotiated at heads of terms stage. It is much harder once the lease is signed.
Do I need a survey if the building looks new?
It is still advisable. New buildings can have defects, and a schedule of condition gives you evidence of the starting point whatever the building’s age.
How much could dilapidations cost at the end?
It depends on the lease, the building and how it has been maintained. A dilapidations liability assessment gives you an informed estimate before you commit.
Get advice before you sign
Lansdown Associates is a RICS regulated firm of chartered surveyors advising tenants and landlords on commercial leases and dilapidations across London, Birmingham, Liverpool, Manchester, Leeds and Northern Ireland. Call 0151 374 0905 or email office@lansdownassociates.co.uk.
