How To Negotiate A ‘Full Repairing and Insuring’ Lease
Business owners new to the commercial property market can face a baptism of fire if unprepared and unsupported by professional advice. Successful landlords, especially those renting properties in highly desirable areas are usually well-versed in how to best protect their interests. This can result in first-time commercial tenants entering into a tenancy agreement that has long-term detrimental consequences for their business interests.
However, it is important to note that a ‘full repairing and insuring’ lease is not designed to create a windfall for the landlord. It is to ensure they have the ability to put their property back to its original condition, should the tenant fail to do so at the end of the tenancy.
What is a ‘full repairing and insuring’ lease?
A ‘full repairing and insuring’ lease is also commonly referred to as an FRI. In an FRI lease, the tenant is responsible for paying the building insurance alongside repairing obligations.
An FRI means the tenant must take on total repair responsibility, regardless of the state of the premises when the lease was originally signed. Such a burden could inadvertently cost thousands of pounds if the tenant is unaware of the extent of their responsibilities under an FRI.
Any covenant which states the tenant is to ‘keep the premises in repair’ means that the incoming tenant is responsible for any repairs, even if they were not responsible for the damage.
In Lurcott v Wakely & Wheeler  1 KB 905, Lord Justice Buckley gave the definition of repair as being, “…..Repair is restoration by renewal or replacement of subsidiary parts of a whole”.
Commercial tenants need to watch out for clauses which place an even greater burden of repairing obligations by including an obligation to rebuild. The wording of such a clause may look similar to the following, ‘to keep the demised premises in good and substantial repair and condition and when necessary, to rebuild, reconstruct or replace the same’.
FRI leases highlight how important it is that commercial tenants should seek out expert legal advice before committing to a lease. Once the lease is signed, tenants have a contractual obligation under the covenants contained in the lease, regardless of their harshness.
How tenants can negotiate on a FRI lease
The level of obligation for repair the landlord will hold a tenant to depends on circumstances and the type of commercial premises being leases. The state of the commercial property market will also have a bearing on how hard a tenant can negotiate– the higher demand for commercial properties at the time the lease is being taken out, the less likely the landlord is to concede on certain clauses in the tenancy agreement.
By taking the following actions, a tenant can limit their repair liability:
- Commission a full building, electrical, mechanical, and structural survey before signing the lease. Make sure the report covers the space being rented and any common areas.
- Ask the landlord to repair any defects either before the lease begins or within a defined time period. Certain defects which will not cause the tenant any issues can be excluded from the repair liability clause.
- Make sure there is a cap on any service charges.
- Ask for leeway in the case of fair ‘wear and tear’, similar to provisions provided in residential leases.
- Limit liability to internal repairs only, meaning the landlord is responsible for external maintenance.
- Do not accept liability for damage caused by inherent/latent defects. Although under law, a tenant is not responsible for repairing an inherent defect, if the defect results in damage to the part of the premises the tenant is leasing, they may be required to rectify the damage, and for cost-effectiveness sake, repair the defect to prevent the damage occurring again. If the tenant cannot negotiate excluding liability for latent defects, it may be worth taking out latent defects insurance.
- If there are defects in the building, have them referred to in a professionally drafted Schedule of Condition.
The importance of an FRI lease for landlords
The negotiation of an FRI lease is not all on the tenant’s side. It is imperative that a landlord can protect their investment and ensure dilapidations are attended to both during the term of the lease and after it ends.
To protect their interests, landlords should ensure the following when drafting and negotiating a commercial lease agreement:
- The scope of the premises the tenant is responsible for is clearly defined, for example, identify the internal walls, floor, ceilings and other component parts which will comprise the tenant’s repair obligations.
- The Schedule of Condition should contain high-quality photographs
- The Schedule of Condition needs to be referred to in any other clauses in the tenancy agreement which may require the tenant to carry out work they have excluded responsibility for in the negotiations
In addition, before agreeing to an early repudiation or assignment of the lease, the landlord must ensure the tenant is still responsible for existing dilapidations claims, either by securing payment or preserving these against the incoming assignee.
For most businesses, a lease is one of the highest outgoings. For both landlords and tenants, agreeing to a FRI lease without expert legal advice could lead to costly legal disputes.
Bennett Griffin are award-winning solicitors based in West Sussex with offices in central Worthing and Ferring. Our experienced and specialist solicitors offer a comprehensive service and will work with you in an honest, considered, and practical manner. Our commercial property department is able to advise and assist you in relation ‘full repairing leases and insuring leases’ and all other commercial tenancy matters. Please contact us on 01903 229 999 or by email at email@example.com for more information.