FRI commercial property leases – the small print can make a big difference
Most commercial leases for business premises are structured as full repairing and insuring (FRI) leases and many potential FRI tenants are surprised to discover they are assuming complete responsibility for building repairs, whether or not they were responsible for the disrepair in the first place.
With this in mind, tenants should never sign a FRI lease without first taking legal advice as to whether the proposed contract is appropriate in the light of a variety of factors such as lease length, property type and age, market strength, and the relative negotiating positions of landlord and tenant.
As a prospective tenant, you should always seek to limit the extent of your liability for repairs. An effective first step is to commission a building survey – once your surveyor has identified any existing or anticipated problems, you will be in a good position to request these are rectified by the landlord before the start of your lease. Alternatively, you could have the works costed and negotiate a rent-free period to reflect any expenses incurred in carrying them out on your landlord’s behalf.
If any of the defects identified are unlikely to cause a problem, you could ask for these to be excluded from your repairing liability through a Schedule of Condition, a formal photographic record of the premises’ condition at the start of your lease. This will provide documentary evidence enabling you to prove the premises are in no worse state at the end of your tenancy than at the start of your lease.
If the proposed lease includes a service charge, ask for the amount to be capped and avoid agreeing to make payments into a sinking fund – under a short-term lease, money paid into a sinking fund cannot normally be reclaimed at the end of the tenancy.
The wording of your lease must be carefully scrutinised to ensure no ambiguous or onerous phrases creep in, a requirement to rebuild or keep in good condition for example, and ensure the lease clearly states you are not liable to pay for damage covered by insurance or caused by an inherent or latent defect. And if the circumstances are right, instead of entering into a FRI, it may be possible to opt instead for a lease under which you are only responsible for repairing internal damage.
Robert Enticott. Partner, Commercial property & Business Services dept.
Business, Commercial Property, General, George Ide