Full repairing and insuring leases and why tenants should be wary

Insights - 27/02/2020

A landlord will often insist that a tenant takes a full repairing and insuring lease (FRI lease). This means that a tenant will be responsible for the costs of insuring and repairing the property.

What many tenants do not realise is that the repair and maintenance obligations contained in the lease can require the tenant to improve the repair and condition of the property at the end of the lease, even if it was in a poor state of repair to start with.

Any covenant that requires the tenant to ‘keep the premises in repair’ means that the tenant is responsible for all repairs, even if the tenant was not responsible for the damage.

Under an FRI lease, a tenant could also be directly responsible for structural issues such as the roof and the external structural.  If these are already in a dilapidated condition at the start of the lease it could become very expensive to put these issues right.

It is important, therefore, for a tenant to consider the following:

Arrange a survey

Even if a property appears structurally sound, it is always a good idea for a tenant to arrange an independent survey of the property before committing to the lease.  The survey will highlight any issues and, from that, the tenant’s liability for repairs.  This survey can act as bargaining tool when negotiating lease terms.

Prepare a schedule of condition

A schedule of condition is a photographic record of the state of repair of the property at a point in time.  It will highlight any imperfections or defects that may exist at the property before the lease commences.  It would then usually be attached to the lease to safeguard against future dilapidations claims from the landlord.  If attached to the lease, the tenant would only need to repair and decorate the property at the end of the lease to match the state shown in the schedule of condition.

Without this type of record there is going to be no proof as to the condition the property was in before the start of the lease.  The obligation to decorate and repair will then be a high one.

Define the property

Careful consideration should be given to how the property is defined as this definition will detail the extent of the property that a tenant is responsible for.  Will it include the structure?  Will it include the roof?  The condition of the roof may be of concern, particularly in relation to a large building or an older building.  Will it include the floor structure?

Specifically identifying the property by reference to its physical attributes will help to make it clear that the tenant is only responsible for the repair of those elements.  This becomes particularly important when the tenant is taking a lease of part of a building.

Carve out certain repairs

In some situations, it may be possible to negotiate with the landlord that the responsibility to repair items that are already in disrepair (such as the roof for example) should be excluded from the repairing obligation in the lease.  This saves future costs for the tenant.  These concessions may be documented in the lease itself or perhaps in a side letter which would be personal to the tenant that negotiated the concession.  This scenario is often used as alternative to a schedule of condition.

Before committing to any lease, a tenant should seek expert advice on its rights, obligations and liabilities. For any further information on this, or any other commercial property transaction, please contact the Commercial Property team at Morrisons Solicitors.

Other articles from February's newsletter

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Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.