Beware the repair! – Top tips for limiting your liability
About to take on a lease of commercial premises? Make sure you are aware of the repair liability you are taking on…
An FRI lease is the abbreviated term for a lease which imposes full repairing and insuring obligations on the tenant, relieving the landlord from all liability for the cost of and repairs.
Most commercial leases will place an obligation on the tenant to keep the premises in good and substantial repair and condition. So, what does this mean?
When taking on an FRI lease, irrespective of the cause of the damage to the premises, the tenant will still be under an obligation to repair the premises and usually the only exception to this is where damage occurs to the premises caused by a risk against which the landlord has insured. Make sure you check the landlord’s buildings insurance policy. As tenant, you will be responsible for paying the insurance premium so you need to make sure that the risks covered are comprehensive.
Always check the extent of the premises you will be responsible for repairing.
Normally, if you are taking a lease of a whole building, you will be responsible for the repair of the whole, including the roof, structure and foundations – what state of repair is it in now? Whether the premises are in “full repair” or in a poor state of repair, taking on an FRI lease without qualifying the repairing liability of the tenant will mean that the tenant will take on the responsibility and cost of putting and keeping the premises in good repair.
It’s always best to negotiate limiting the extent of the tenant’s repair liability at the heads of terms stage. Consider:
Limiting the repairing obligation by reference to a schedule of condition
If you agree to a full repairing liability then the building should be in full repair at the start of the lease. If your building survey shows that this is not the case then you should try to limit your repairing liability so that you are not obliged to put or keep the premises in any better state of repair or condition than the premises were in at the start of the lease. A schedule of condition comprises of a detailed photographic and descriptive record of the condition at the start of the lease so that the tenant can return the premises in no worse state of repair than as evidenced by the schedule.
Excluding damage caused by inherent defects
Perhaps the building is new and in full repair. If so then you will be less concerned with requesting a schedule of condition but should try to exclude liability for inherent defects, being any damage caused to the premises due to faulty design or workmanship in their construction. Such defects may not become apparent until some time after you have taken the lease and occupation. It is important that the landlord is specifically made responsible for such repair and maintenance.
Ask the Landlord for a service charge cap
Where there is a service charge for common areas, which often include shared accesses, car parks and the structure of the building it may be possible to agree a service charge cap with the landlord and items of improvement/refurbishment should be excluded especially in short term leases.
Consider asking for fair wear and tear provision
This is useful, for example, where the lease includes an obligation on the tenant to replace the carpets at the end of the term. This is likely to be resisted by landlords but is worth considering.
Limit the liability to internal repairs only
Rather than accept a FRI lease try and obtain an internal repairing liability only. Where there is a separate service charge, this too will need to be looked at as what you gain from limiting your liability on your premises may be counteracted by the landlord with an increased service charge.