Entering into a Full Repair and Insuring (FRI) lease is a significant commitment that can have far-reaching implications for both the Landlord and the Tenant. If you want to know more about an FRI Lease read here.
This type of lease places substantial responsibilities on Tenants for maintaining the property’s condition and arranging insurance coverage. Before signing an FRI lease, it is crucial to understand the implications and consider several key factors.
We would always strongly recommend that you seek professional advice from a RICS Surveyor.
Maintenance Responsibilities of an FRI Lease
Under an FRI lease, Tenants are often responsible for all aspects of property maintenance, including structural repairs, plumbing, electrical systems, and more. Assess your ability to manage these responsibilities and the associated costs. We would strongly recommend that you instruct a RICS Surveyor to undertake a Dilapidations Liability Assessment before you agree to the lease.
Insurance Cover:
While the Landlord usually arranges the property’s insurance, the cost is passed onto the Tenant. Understand the type and extent of insurance coverage required and the financial implications for your business.
Survey and Inspection:
Conduct a thorough survey of the property to identify any existing issues or potential future problems. This information can help you negotiate lease terms and understand the maintenance requirements better. We would always recommend a Schedule of Condition is undertaken before entering into the Lease.
Financial Planning:
Estimate the costs associated with ongoing maintenance and insurance coverage. Make sure your budget can accommodate these expenses without straining your business operations. Again, a Dilapidations Liability Assessment may help you better understand your position.
Ensure Terms Are Right for You
It’s important before you sign on the dotted line, that you read thoroughly the terms of your lease. Everything from exit strategy to length will be vital for you and your business to ensure a favourable lease.
Consider all of the following before you sign anything.
Negotiation of Terms:
Don’t hesitate to negotiate the terms of the FRI lease. Consider requesting a cap on service charge increases, ensuring you won’t face sudden and unexpected financial burdens. Depending on the condition of the property, you may also wish to omit elements of the building fabric (roof, for example) in order to protect your exit.
Length of Lease:
How long is your Lease? Is there a break clause? Is this clause dependent on performance? Is your Tenancy protected? Are you entitled to renew?
Longer leases may provide stability, but they also lock you into responsibilities for an extended period. Evaluate the balance between commitment and flexibility.
Exit Strategy:
Plan for the end of the lease term. The importance of planning your exit cannot be under-estimated. Understand your obligations for returning the property in good condition and how dilapidations may be addressed. At this point, you will need professional advice.
Professional Advice: Consult with legal and financial experts before signing. RICS Surveyors should be instructed to assist you with technical aspects of your potential occupation. Leases are legally binding documents and often complex. Therefore, professional advice can help you fully comprehend the terms and potential risks.
Market Trends:
Research market trends in the area. If property values are expected to decline, or if commercial rates are increasing rapidly, this could impact your decision to enter an FRI lease.
Alternative Lease Structures: Explore alternative lease structures that might offer a better balance of responsibilities. For example, a “service charge” lease could shift some maintenance and insurance responsibilities to the landlord. You may also wish to opt for a Licence as opposed to a Lease as this may give you and your Business greater flexibility.
Business Plans:
Align the lease with your long-term business plans. Ensure that the property’s condition, location, and your obligations support your company’s growth and objectives.
Speak to one of our Dilapidations Experts today
