A full repairing and insuring (FRI) lease is the most common form of commercial property lease in Scotland. Its main purpose is to transfer the Landlord’s common law responsibility of repairing, maintaining and insuring the property on to the tenant. This article will explain the function of an FRI lease and explore the ways in which an experienced legal representative can advise as to how to best protect a tenant’s and landlord’s best interests under an FRI lease.

What is a full repairing and insuring (FRI) lease?

An FRI lease is one that imposes on the tenant full repairing, renewing and rebuilding obligations and the liability to pay for insurance premiums.

If a property has been let and the lease in question is not drafted as a proper FRI lease then the value of the property may drop, making it difficult to borrow against the property or to sell it as a property investment. It is therefore important to get things right.

The common law position

It is essential when dealing with repair clauses in a lease that both the landlord and tenant seek legal advice to ensure the common law position is fully understood and dealt with appropriately.

Under the common law, a landlord’s duties are as follows:

• • The landlord must provide the tenant with premises that are reasonably fit for their purpose. If the premises are not fit for purpose, or where any damage was caused by a defect in design or construction, then the landlord can be found liable to the tenant in damages and, in serious cases, the tenant can terminate the lease.
    
    
  • The rule of “rei interitus” provides that, where the premises are so destroyed or so damaged as to render them unfit for purpose, the lease will come to an end at the date of that destruction or damage, and neither party will have any liability to the other.

The function of a well drafted FRI lease from the perspective of the landlord is to fully displace all of these common law duties on to the tenant. The tenant, on the other hand, will want to try and minimise their repair obligations under the lease as much as possible.

Landlord’s considerations

It is essential from the landlord’s perspective that in order to avoid a claim being made against them, the lease contain a statement that the tenant accepts the premises and any common parts of said premises as being in good repair and condition and fit for purpose.

Moreover, the landlord will wish to include wording which confirms that the tenant is obligated to keep the premises in good and substantial repair and condition including an obligation to renew, replace and rebuild the Premises. It will be vital that this clause confirms that this obligation will apply to all repairs, irrespective of the condition of the premises or the cause of the damage.

The landlord will also require wording to be included which places the obligation for paying insurance premiums and associated insurance costs on to the tenant.

Lastly, from a landlord’s perspective the lease should include wording which disregards the “rei interitus” position and confirms that except as specified in the lease, damage or destruction of the property will not automatically terminate the lease.

Tenant’s considerations

It will be in the tenant’s best interests to try and negotiate the inclusion of a “schedule of condition” in the lease. A schedule of condition will be prepared by the tenant’s surveyor to accurately record the condition of the property at the date of entry using both photographs and verbal descriptions. If the landlord approves the inclusion of the schedule of condition, then the tenant’s repair obligation will be restricted to solely maintaining the premises in no worse state of condition and repair than they were in at date of entry as detailed in the schedule of condition.

A schedule of condition properly prepared by a surveyor should clearly identify the defects of repair in the premises as at the date of entry thereby excluding these issues from the tenant’s repair liability under the lease.

In addition to seeking the inclusion of a schedule of condition, a tenant should always make sure that their repair obligation excludes any damage caused by insured risks (these are risks such as fire which the landlord will reasonably take out a policy against) or uninsured risks (in essence, these are insured risks which are not insured against at the time due to either insurance not being available or this risk having been excluded by insurers).

Contact our Specialist Commercial Property Lawyers for Expert Advice

Murray Beith Murray Partner, Bill Meldrum, is Head of Commercial Property and has a wealth of expertise and experience in the area of commercial leases.

Whether you are looking to lease your commercial property, or enter into a commercial lease, you must be aware of the obligations you will be bound by. If this blog has raised any questions or you would like to discuss a matter regarding commercial leases, please complete the enquiry form or call on 0131 225 1200.

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