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How FRI Leases will affect Occupiers

Q: I am looking to rent a small light industrial unit with ancillary office space and the landlord said the lease will need to be on a full repairing and insuring (FRI) basis. Can you explain what this means and what issues do I need to be aware of before I sign a lease like this?

Entering into an FRI lease means that you would end up footing the bill for all repair costs both inside and outside the property and for the cost of insuring the property albeit that the landlord insures and you reimburse him for what he spends.

Entering into such a lease could result in considerable financial liability for you if the premises are not in good repair when you take the lease as the Landlord could potentially get you to bring the premises up to standard. I would strongly recommend that you limit the amount you may have to spend on repair costs by putting a provision in the lease to say that you only have to keep the property in the state it is in when you take the lease.

If the parties agree that the repairing obligation will be limited in this way, they should prepare a schedule of condition to show the state of the premises at the date of the grant of the lease. The schedule should include photographs and a detailed description of the condition of the property, and should be signed by the parties to the lease. It is important that the schedule of condition is kept with the lease for future reference and that the covenant in the lease expressly refers to the schedule.

A schedule of condition may be particularly important to an undertenant who is taking an underlease. The undertenant may argue that a full repairing obligation is inappropriate in these circumstances and that it is unreasonable to expect it to hand back the property in a better condition than it was in when the underlease was granted. As a variation from the terms of the superior lease this may require the superior landlord's consent if the superior lease stipulates that any underlease is to be on the same terms.

In relation to the insurance costs payable by the tenant you should make sure that such insurance costs have to be reasonable.

All answers are for general guidance only. Each case must be handled on the individual facts.

This article was originally published on Insider News Yorkshire.

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Dated: 11/01/2013

Author: Greg Cox

FRI Leases

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