17th June 2026 | Jonathan Broad | Commercial Property, Leases, FRI Leases

Conventionally, a lease of commercial premises at a yearly market rent is let on a FRI (full repair and insurance basis).  This ordinarily means the tenant is required to keep its demised premises in “good repair and condition” at the tenant’s own expense.  Where a lease forms only part of the building and the landlord runs a service charge regime, the tenant will usually additionally be required to contribute a fair proportion towards the cost of repairs to the structure and exterior of the building through the service charge.

Perhaps counter-intuitively, a covenant to keep in good repair requires a tenant to make good any disrepair which already exists at the start of the lease. For this reason, it is important for tenants to inspect potential new premises and ascertain its existing level of repair and condition prior to taking on an FRI lease.

A requirement to keep in “good repair and condition” is slightly more onerous than a covenant to keep “in repair”, as the former can require works to be carried out even if there is no disrepair, unlike the latter.

 

Ways to limit the repairing obligations

The tenant’s repair obligation will extend to the extent of their demise. For this reason, modern leases usually contain a fair amount of detail about what exactly is included within the demise, and what falls outside this. Tenants should therefore check carefully exactly what is included within their demise, as they will not want to be solely responsible for any areas which are in practice used by several of the building’s occupiers.

Where a new lease is being entered into, and the proposed demise is in disrepair, the tenant can seek to limit the repair clause by means of a Schedule of Condition.  This alters the repair clause so that the tenant is not required to put the demised premises into any better repair than at the start of the lease, as evidenced by a photographic schedule of condition, which should be annexed to the lease prior to completion. It is obviously in the tenant’s interest that this photographic record is both accurate and sufficiently detailed, particularly in showing existing disrepair.

 

Insurance

In a standard FRI lease, the landlord insures the whole of the property, and recharges amongst the tenants the cost of obtaining this insurance.  For this reason, tenants will also want to check that the repair clause excludes any damage caused by an insured risk, and that the insurance clauses require the landlord to use the insurance proceeds to repair the premises. Tenants will also want to check the list of risks the landlord is required to insure against is comprehensive.

Owing to a tendency for insurance contracts to contain more exceptions and restrictions than was historically the case, modern leases frequently include a definition of “Uninsured risks”; these are risks which would be an insured risk except for an exclusion imposed by insurers or because insurance against the risk is simply unavailable on the market.  It is to the tenant’s advantage if it is not required to repair damage caused by an uninsured risk under the lease as well; otherwise the tenant’s repair clause would technically still apply, and they could end up liable for repair costs the tenant was not expecting.

 

Inherent Defects

This will particularly be of concern for tenants of new premises. An inherent defect is a defect in the construction of a building owing to materials, design etc. which was not immediately apparent on that building’s construction. An example would be where a design flaw in a building allowed water ingress which caused damage to the interior of the building.

A tenant will not be required to correct the latent defect, but any damage resulting to the tenant’s demise would usually fall within the tenant’s repair clause in the usual way. In the water ingress example, the tenant would not have to fix the building to prevent ingress, but would ordinarily be responsible for repairing any resulting damage to their demise caused by the water ingress.

Tenants (particularly tenants of new premises) may therefore wish to try and agree a clause whereby any disrepair caused as a result of an inherent defect is the landlord’s responsibility, rather than the tenant’s.   

To find out more, contact Jonathan Broad or the Commercial Property Team. 

 

Related insights