Reasons to choose Wilson Browne
A full repairing and insuring lease (“FRI Lease”) is a lease in which the tenant takes on all of the costs for repairs and insurance for the property being leased from the landlord.
It is fairly standard when seeing Heads of Terms that commercial leases will be FRI. The requirement for repair of the premises applies even if the property is in a poor state of repair to begin with and does not take account of the age or condition of the property at the point the lease is taken out.
That statement can be a surprise to many people. The common misconception is that a tenant only has to give the property back in the same condition in which they took it. This is not the case. By entering into an FRI lease the tenant takes on complete responsibility for repairs, even if the disrepair already existed when the lease was granted.
If there are any doubts as to the condition of the property, a tenant should obtain an independent survey on the property. Such a survey report can act as a bargaining tool for the tenant in the negotiation of the lease terms, or it can be used as proof of the state and condition the property at the start of the term. At the very least it will alert a tenant as to potential costs in the future. This report can create a “Schedule of Condition” to be attached to the lease. The better the schedule, the better the potential safeguard against future dilapidation claims from the landlord. Commonly tenants opt for a simple set of photographs by way of a schedule of condition, in order to keep down costs, but this can prove to be false economy when the lease ends as it can leave the parties in dispute as to the actual condition at the outset. A comprehensive formal Schedule of Condition prepared by a qualified surveyor can prove its worth at the end of the lease, or if the landlord seeks to require a tenant to carry out works of repair during the currency of the lease term.
The definition given to “the property” in a lease is also crucial because this will detail the extent of the property for which the tenant is responsible. For instance, is the lease an internal only demise or does the tenant have responsibility for the whole structure? If the latter applies, the condition of the main structure, including walls, roof and foundations, as well as any outside areas such as car parks, boundary walls and fencing etc., may be a big concern. This is especially relevant to a lease of an old building, and in the case particularly of old industrial buildings the roof for example can be a big concern and inspection of the roof may require specialist equipment for a proper survey to be carried out.. In such situations it may be possible to negotiate with the landlord for the roof (or any other specific area of concern) to be excluded from the repairing obligation in the lease and thereby saving that future cost to the tenant.
Given the fact that many industrial units are now well past their original anticipated lifespan and many retail units and offices are based in very old buildings tenants should consider very carefully exactly what liabilities they are taking on in the context of maintenance and repair, particularly if they are only taking on a relatively short lease term.
Complying with the repairing obligations within a FRI lease on an ongoing basis is one of the biggest liabilities for any tenant and this liability doesn’t end just because the lease does.
As the lease approaches its end or even after the term has ended, a landlord will inspect a property to serve a terminal schedule of dilapidations on the tenant.
This schedule lists all items of disrepair in the property and will quantify the cost of carrying out the repairs, including a calculation of lost rent for the period during which the repairs are carried out. The landlord’s intention will be to agree a payment in lieu of repairs and it is not unusual for this figure to be very high. At this stage, it is advised that a tenant should seek professional advice from a surveyor to negotiate the sums on their behalf. The surveyor will look at the tenant’s repairing obligations as set out in the lease so as to advise on the likely costs and to assist in the negotiations. The more the repairing obligations were considered when the lease is negotiated at the outset, the better placed the tenant will be when it comes to discussing the schedule of dilapidations.