What is an FRI Lease & How it Works

Definition FRI: FRI lease stand for “Full Repairing and Insuring Lease”. Meaning a tenant is responsible for all repairs and insurance of a property they inhabit, not the landlord.

notwithstanding that:

• The landlord will almost invariably take out the insurance itself; and
• In the case of a multi-let building, the landlord will carry out the repairs to the common parts.

When is an FRI lease used

An FRI lease is commonly used in commercial properties. For example, a restaurant business as a tenant will be responsible for the full internal maintenance and insurance. It is also used in social housing or housing associations who will rent property from the landlord on an FRI agreement and then rent to council tenants for example.

Pros of an FRI Lease

Less responsibility – As landlord you are not responsible for the maintenance and repairs of the building saving you management and other costs.

Long term tenants – As these are commonly commercial properties then you are likely to have a long-term tenant.

Good tenants – A commercial tenant is likely to put a lot of money making the property fit for their purpose and maintaining it. This will help keep your property in good condition in the long run.

Social housing long term agreement – If you are renting to a housing association for example, then you can often have the property rented for a very long period with nothing to do other than accept the rental income.

Cons of an FRI Lease

Changing tenants - If you have a client who needs to kit out the property for a particular purpose, for example a bakery will need all the proper equipment installed, along with ventilation, H&S systems etc… Although you do not have to do anything the property will be geared towards a particular purpose.

Rent Free Period -  As with the point above if you find a new tenant after previous tenant leaves, you may have to offset their costs by offering a rent free period to allow them to spend the money and time on fixing the property to their needs.

More advise with contracts needed – If you are a commercial landlord with FRI commercial property then you will want/need more advice with certain tenant acts. For example, you may wish to have sections 24-28 of The Landlord and Tenant Act 1954 to give you power to evict the tenant should you need to.  If not, then you could owe the tenant compensation to remove them for the property.  You may also then need to agree further additions such as how they return the property to how they found it when they started their tenancy.

Bad residential tenants – If you have rented it to an association or council for social housing then you run the risk of bad tenants as a higher possibility. These tenants may not look after your property as well as a commercial tenant or a working professional.