The Rent Review Specialist
FRI
FRI Lease
FRI is an abbreviation for "full repairing and insuring".
Full repairing means the tenant is responsible for all repairs and decoration to the property, inside and out.
The insuring means the building insurance premium is recoverable from the tenant.
Effective FRI means that the tenant is not directly responsible for all repairs, etc but the landlord is able to recover the cost of repairs, etc to the common structure from the tenant.
In outline, investor preference is for a ‘clean’ lease where the whole of the cost of repairing and maintaining the premises is either the direct responsibility of the tenant or indirectly through reimbursement to the landlord of all costs, either ‘pay as incurred’ or via a service charge.
A ‘clean’ lease will have full repairing and decorating covenants. Because responsibility for building insurance is also an important covenant for a ‘clean’ lease, a full repairing lease also includes full insurance and is generally lumped together in the expression known as a ‘full repairing and insuring lease”, or FRI, for short. Generally, FRI covenants are only found where the tenancy is of the entire building. Where the premises are part of a building, it is common to have FRI covenants, but the FR limited to the actual premises, with other covenants for contributing towards the cost of repairing and maintaining the common parts and party structure.
The format of repairing covenants will often comprise different obligations. There is a basic obligation to repair, a separate obligation to redecorate periodically, (with a specified regime for external and internal decoration, including colour schemes, and so on), a covenant to yield up in repair (at the end or sooner termination of the tenancy), perhaps a right for the landlord to enter and inspect the premises and to serve notice to repair and for the landlord to enter and repair at the tenant’s cost if the tenant fails to comply with the notice.
There is no standard wording for the repairing obligations in a lease, so because tenants naturally want to minimise the liability, the interpretation of the words and expressions in different leases has given rise to a considerable body of case-law for interpreting what the landlord can require and enforce, and the tenant would have to do.
The general principle, that a lease must be construed as a whole and an individual clause in a lease should never be read in isolation from the rest of the lease, applies in particular to repairing covenants. For example, the extent of the demise will determine what is to be repaired, a proviso may exonerate the tenant from a repairing covenant if having to carry out works to remedy damage by insured risks, and the repairing obligation may require a procedure to be carried out beforehand perhaps involving the service of a notice.
Even where the meaning of the covenant is established, it is not easy to be certain whether particular work falls inside or outside the obligation to repair. For example, full repairing would only likely include inherent defects in the structure if that expression ‘inherent defect’ were specifically stated in the lease. With an almost infinite variety to the circumstances, nature and importance of the work to be considered, it is always a question of fact and degree.
Generally, the word ‘repair’ does not including renew or improvements, so even where it would be cheaper to renew or replace with something more modern rather than repair, it does not necessarily follow that the tenant would be within its rights to use a replacement.
Reinstatement (where the tenant has carried out alterations to the premises and where the landlord envisages the premises to be restored to their original state at the end of the term) has to be considered carefully: the licence to alter the premises must state that the reinstatement has to be carried out. If not then the tenant would be within its rights to not reinstate, but in principle that does not mean the landlord cannot remove the alteration so as to check that any part of the premises hidden by the tenant’s alterations is in repair.
A common situation that arises is where on grant of the tenancy the premises were in a poor state of repair and the tenant had to carry out works to make the premises for its occupation and use. Unless the lease contains a Schedule of Condition (an agreed list of items excluded from the tenant’s repairing obligation) it would normally follow that the tenant would be expected to repair the premises regardless of the state the premises were in when the tenant took on the lease. The same applies when the tenant is an assignee of the first or successor tenants, and where the previous tenants did not leave the premises in a state of repair as envisaged by the lease.
During the tenancy, whether the tenant complies with repairing and decorating covenants voluntarily or has to be reminded and/or forced to by the landlord would depend upon the tenant’s corporate image and/or the tenant’s resources. Because a FRI lease is par for the course in the shop property market (unless the building is elderly, listed or of unusual construction where it would be reasonable to limit the tenant’s repairing obligations to the interior of the premises), many tenants pay ‘lip service’ to repairing obligations, and many landlords are accommodating through fear that if the tenant were forced to repair the property then there would be no money left to pay the rent. That is why the structural maintenance and repair of buildings in a great many locations looks neglected even though one would reasonably expect tenant there to be on FRI leases.
Where an entire building is let to the tenant, but the tenant only uses the ground floor, for example, and only that floor is open to the public, it is quite probable that the tenant will not bother to repair and maintain the rest of the building except in emergency or required to do so by the landlord or a statutory authority. Although in principle it is normally cheaper to repair the premises at the onset of the tenancy, tenants generally tend to take their chances with the law on expiry or sooner determination of the tenancy by ‘throwing money at the problem’ rather than trying to save money by taking prudent steps beforehand.
Where the tenant’s full repairing covenant is limited to the demised premises, with the landlord responsible for the common structure, roof, foundations, etc, when the tenant should have to reimburse the costs to the landlord can vary. Generally, there is reluctance to pay in advance of the landlord carrying out any works so reimbursement would be on demand after the landlord has incurred the expenditure. To avoid being under enforceable obligation to the tenant to be responsible for the common structure, etc, leases may not expressly state the landlord is under covenant to repair. Although in principle the fact of a tenant not being responsible for repairs other than as stated would imply that the landlord should be responsible for the remainder of the repair, the absence of an express covenant may prevent the tenant from enforcing the implication.
Where the repairing covenants is tenant internal expressly, landlord external and common structure (whether express covenant or implied), generally, tenants can describe the arrangement as “effectively FRI” but that may not be the case, and it does not follow without reading the lease carefully that the landlord could not successfully reason a percentage uplift for the residual responsibility. For purpose of rent review, and when I am acting for a tenant, and where there is no express covenant to repair by the landlord, I reason (generally successfully) that the rent should not include any uplift to reflect the residual responsibility on the landlord.
Depending upon the intention of the original parties or the bargaining strength of the first tenant, the lease may not require the tenant to pay the costs and expenses incurred by the landlord for repair, etc of the common structure. A FRl lease can also be subject to a ‘fair, wear and tear’ exclusion. Inherent defects in the structure are not normally in the definition of repair.
Fixtures and fittings comprise things that are attached to the landlord or building in a permanent manner, becoming part of the property rather than easily removable. A rule-of-thumb is to imagine turning the property upside down: anything that falls out would not be a fixture or fitting. (Exceptions include tenant’s trade fittings, including shop counters, ornamental items, and items supplied to the tenant by third parties.) Generally, a repairing covenant includes landlord’s fixtures and fittings, together with fixtures and fittings belonging to any previous tenant) and the repairing obligation will often extend to replacement.
Before giving up vacant possession of the premises, the tenant would normally have to remove its own fixtures and fittings, but if the tenant then leaves anything behind (perhaps cheaper to do so or not worth bothering about) then the repairing obligation extends to those fixtures and fittings (that previously belonged to the tenant).
Full repairing means the tenant is responsible for all repairs and decoration to the property, inside and out.
The insuring means the building insurance premium is recoverable from the tenant.
Effective FRI means that the tenant is not directly responsible for all repairs, etc but the landlord is able to recover the cost of repairs, etc to the common structure from the tenant.
In outline, investor preference is for a ‘clean’ lease where the whole of the cost of repairing and maintaining the premises is either the direct responsibility of the tenant or indirectly through reimbursement to the landlord of all costs, either ‘pay as incurred’ or via a service charge.
A ‘clean’ lease will have full repairing and decorating covenants. Because responsibility for building insurance is also an important covenant for a ‘clean’ lease, a full repairing lease also includes full insurance and is generally lumped together in the expression known as a ‘full repairing and insuring lease”, or FRI, for short. Generally, FRI covenants are only found where the tenancy is of the entire building. Where the premises are part of a building, it is common to have FRI covenants, but the FR limited to the actual premises, with other covenants for contributing towards the cost of repairing and maintaining the common parts and party structure.
The format of repairing covenants will often comprise different obligations. There is a basic obligation to repair, a separate obligation to redecorate periodically, (with a specified regime for external and internal decoration, including colour schemes, and so on), a covenant to yield up in repair (at the end or sooner termination of the tenancy), perhaps a right for the landlord to enter and inspect the premises and to serve notice to repair and for the landlord to enter and repair at the tenant’s cost if the tenant fails to comply with the notice.
There is no standard wording for the repairing obligations in a lease, so because tenants naturally want to minimise the liability, the interpretation of the words and expressions in different leases has given rise to a considerable body of case-law for interpreting what the landlord can require and enforce, and the tenant would have to do.
The general principle, that a lease must be construed as a whole and an individual clause in a lease should never be read in isolation from the rest of the lease, applies in particular to repairing covenants. For example, the extent of the demise will determine what is to be repaired, a proviso may exonerate the tenant from a repairing covenant if having to carry out works to remedy damage by insured risks, and the repairing obligation may require a procedure to be carried out beforehand perhaps involving the service of a notice.
Even where the meaning of the covenant is established, it is not easy to be certain whether particular work falls inside or outside the obligation to repair. For example, full repairing would only likely include inherent defects in the structure if that expression ‘inherent defect’ were specifically stated in the lease. With an almost infinite variety to the circumstances, nature and importance of the work to be considered, it is always a question of fact and degree.
Generally, the word ‘repair’ does not including renew or improvements, so even where it would be cheaper to renew or replace with something more modern rather than repair, it does not necessarily follow that the tenant would be within its rights to use a replacement.
Reinstatement (where the tenant has carried out alterations to the premises and where the landlord envisages the premises to be restored to their original state at the end of the term) has to be considered carefully: the licence to alter the premises must state that the reinstatement has to be carried out. If not then the tenant would be within its rights to not reinstate, but in principle that does not mean the landlord cannot remove the alteration so as to check that any part of the premises hidden by the tenant’s alterations is in repair.
A common situation that arises is where on grant of the tenancy the premises were in a poor state of repair and the tenant had to carry out works to make the premises for its occupation and use. Unless the lease contains a Schedule of Condition (an agreed list of items excluded from the tenant’s repairing obligation) it would normally follow that the tenant would be expected to repair the premises regardless of the state the premises were in when the tenant took on the lease. The same applies when the tenant is an assignee of the first or successor tenants, and where the previous tenants did not leave the premises in a state of repair as envisaged by the lease.
During the tenancy, whether the tenant complies with repairing and decorating covenants voluntarily or has to be reminded and/or forced to by the landlord would depend upon the tenant’s corporate image and/or the tenant’s resources. Because a FRI lease is par for the course in the shop property market (unless the building is elderly, listed or of unusual construction where it would be reasonable to limit the tenant’s repairing obligations to the interior of the premises), many tenants pay ‘lip service’ to repairing obligations, and many landlords are accommodating through fear that if the tenant were forced to repair the property then there would be no money left to pay the rent. That is why the structural maintenance and repair of buildings in a great many locations looks neglected even though one would reasonably expect tenant there to be on FRI leases.
Where an entire building is let to the tenant, but the tenant only uses the ground floor, for example, and only that floor is open to the public, it is quite probable that the tenant will not bother to repair and maintain the rest of the building except in emergency or required to do so by the landlord or a statutory authority. Although in principle it is normally cheaper to repair the premises at the onset of the tenancy, tenants generally tend to take their chances with the law on expiry or sooner determination of the tenancy by ‘throwing money at the problem’ rather than trying to save money by taking prudent steps beforehand.
Where the tenant’s full repairing covenant is limited to the demised premises, with the landlord responsible for the common structure, roof, foundations, etc, when the tenant should have to reimburse the costs to the landlord can vary. Generally, there is reluctance to pay in advance of the landlord carrying out any works so reimbursement would be on demand after the landlord has incurred the expenditure. To avoid being under enforceable obligation to the tenant to be responsible for the common structure, etc, leases may not expressly state the landlord is under covenant to repair. Although in principle the fact of a tenant not being responsible for repairs other than as stated would imply that the landlord should be responsible for the remainder of the repair, the absence of an express covenant may prevent the tenant from enforcing the implication.
Where the repairing covenants is tenant internal expressly, landlord external and common structure (whether express covenant or implied), generally, tenants can describe the arrangement as “effectively FRI” but that may not be the case, and it does not follow without reading the lease carefully that the landlord could not successfully reason a percentage uplift for the residual responsibility. For purpose of rent review, and when I am acting for a tenant, and where there is no express covenant to repair by the landlord, I reason (generally successfully) that the rent should not include any uplift to reflect the residual responsibility on the landlord.
Depending upon the intention of the original parties or the bargaining strength of the first tenant, the lease may not require the tenant to pay the costs and expenses incurred by the landlord for repair, etc of the common structure. A FRl lease can also be subject to a ‘fair, wear and tear’ exclusion. Inherent defects in the structure are not normally in the definition of repair.
Fixtures and fittings comprise things that are attached to the landlord or building in a permanent manner, becoming part of the property rather than easily removable. A rule-of-thumb is to imagine turning the property upside down: anything that falls out would not be a fixture or fitting. (Exceptions include tenant’s trade fittings, including shop counters, ornamental items, and items supplied to the tenant by third parties.) Generally, a repairing covenant includes landlord’s fixtures and fittings, together with fixtures and fittings belonging to any previous tenant) and the repairing obligation will often extend to replacement.
Before giving up vacant possession of the premises, the tenant would normally have to remove its own fixtures and fittings, but if the tenant then leaves anything behind (perhaps cheaper to do so or not worth bothering about) then the repairing obligation extends to those fixtures and fittings (that previously belonged to the tenant).