Page 2 - FRI Leases

FRI LEASES

An FRI lease is the abbreviated term for a lease which imposes full repairing and insuring obligations on the
tenant, relieving the landlord from all liability for the cost of insurance and repairs. Many leases of commercial
property will be of this type, with the landlords heavily protected to ensure they have as good an investment as
possible by passing on as many costs as possible to the tenant. It is important however to point out that there
are other forms of commercial lease available which are less onerous for tenants. These generally are for
shorter terms and for smaller premises and usually relate to more modest commercial activities. They are not
dealt with in this article.

The repairing obligation is likely to stipulate at the outset that as at the date of entry, the tenant accepts the
premises in ‘good and tenantable condition and repair and fit for the purpose for which they are let’ or similar
words, whether or not they are. The tenant, if he accepts this, is thereafter obliged to repair, maintain and renew
the premises in that state throughout the currency of the lease and, perhaps most importantly, to hand them back
in that state at the end of the lease. It is important, before accepting that obligation, for the tenant to ascertain
whether the premises actually meet this hypothetical ideal. Usually a building surveyor will be instructed who will
highlight any problem areas. Should the premises be in poor condition, several options may be open to the
tenant. One option would be to have the building brought up to standard by the landlord prior to taking
occupation—i.e. to ensure that on the date of entry they are in ‘a good and tenantable condition and repair and fit

for the purpose they are let’. An alternative would be to carve out certain items from the repairing obligation, for
example the roof. A further option would be to annex to the lease a schedule of condition highlighting the state of
the premises at the date of entry and specifying that the premises will be returned in no worse, but no better,
condition than as they are at the date of entry as evidenced by the schedule. Any of these options acts as a
limitation on the ‘full repairing’ obligation in the lease. . A tenant may also wish to exclude fair wear and tear
and/or latent and inherent defects from the repairing obligation. Proceeding with any of these options is subject to
reaching agreement with the landlord.

In relation to the insurance provisions in an FRI lease, in the majority of cases, the landlord insures the property
with the tenant repaying the premium to the landlord. The landlord will usually insist on insuring the property as
he or she is then in control and can ensure that the property is properly insured at all times. In this situation, the

tenant should ensure that, if the premises are destroyed or damaged to such an extent that they need to be
rebuilt, the lease provides that the landlord, not the tenant, is responsible for the shortfall if the insurance monies
turn out to be insufficient to meet the cost of re-building as a result of the landlord underinsuring the property. In
the case of damage / destruction it will usually be provided that the lease will not terminate under the common
law provision of rei interitus (that is, that the lease will terminate automatically if the premises are
destroyed) and the lease is likely to continue at least for the time it would take for the premises to be rebuilt
taking into account demolition, planning etc—normally for up to three years. The lease should provide that in
those circumstances payment of the rent is to be reduced rateably to match the extent of the damage provided

the damage or destruction is as a result of an insured risk. The lease will usually provide for the landlord to insure
not only the building (and professional fees) but also for loss of rent for a period, normally up to three years. The
scope of the insured risks should be as comprehensive as possible, and if possible the tenant should seek to
include an option to request additional risks to be insured if necessary.

Page 2