FRI leases: A classic misconception
What are ‘FRI’ leases and why should prospective tenants be wary of entering into them without seeking advice?
Despite the recent rise in the number of tenants seeking flexible office space, through sharing possession/occupation arrangements, it requires creative application of the law to achieve success and even then, there are many pitfalls for the unwary.
Accordingly, many landlords still prefer the classic lease arrangement where a tenant exclusively occupies a given area in return for payment of a fixed rent for a specified term. The landlord’s starting position will usually be to seek a Full Repair and Insurance lease (“FRI”) and although every solicitor should be aware of the implications, it is surprising how many professionals are unaware and, in seeking to avoid legal fees at the outset, unwittingly enter into onerous leases where the liabilities can be exceptional and can, legitimately, require the tenant to leave the landlord’s property in a better state of repair than it was when the lease was signed.
The clue is in the title Full Repair but the surprise is that the legal definition of repair in this context, is not to put the property in the position it was in at the start of the lease, but to effectively put it in the position it would have been in if it had just been constructed.
The advice to prospective tenants is simple: do not enter into an FRI lease unless you have carefully surveyed the property and are satisfied with the condition and that each and every part is not in disrepair. If in doubt, consider commissioning a building survey. Otherwise, re-negotiate! FRI leases make things simple for the landlord, but a relatively straightforward alternative is a schedule of condition with colour photographs in support and modification of the relevant repair clauses to reflect the age and condition of the property.
Another linked aspect is the decoration obligation, which usually requires the tenant to do so at periodic intervals and immediately prior to conclusion of the term. If the decoration was not refreshed immediately prior to your occupation, why should a tenant do so before leaving?
There are many traps for the unwary, which there is not sufficient time to explore here, but writing as someone who regularly acts in connection with dilapidations disputes at the conclusion of commercial property tenancies: despite legal fees seeming expensive, you will usually find that the cost of the advice at the outset is dwarfed by dilapidation problems on termination, and sound legal advice at the outset could have materially mitigated or even extinguished those problems altogether.
If you are looking for advice on leases or need any support in connection with dilapidations issues on termination, we would be happy to assist.
Mark Wrinch is a solicitor specialising in dispute resolution in the Business Services Team at Barker Gotelee Solicitors.