FRI leases: Why ‘Full’ Repairing Liability Doesn’t Necessarily Remove Landlord’s Risk
By Doug Parker, Montbart
First published 28th July 2026
A full repairing and insuring lease can provide a commercial property owner with considerable reassurance. The lease may be beautifully drafted. The repairing obligations may be crystal clear, fully comprehensive and completely understood by both parties. Responsibility for maintaining the property may appear to have been transferred neatly to the tenant for the duration of the term.
Speaking from grim experience though, it’s no guarantee whatsoever the tenant will comply.
The lease can allocate responsibility, establish liability, and provide mechanisms for enforcement. However it can’t physically repair the roof, replace the windows or make sure a tenant has available cash to carry out the works when they become necessary.
This creates an important consideration for commercial property owners - the tenant might hold the contractual liability, but the landlord will always carry the investment risk.
What is an FRI lease?
A full repairing and insuring lease (generally abbreviated to ‘FRI’) is a commercial lease under which the tenant accepts responsibility for repairing and maintaining the whole of the property included within its demise.
Where the lease relates to a self-contained building, this will extend beyond the internal rooms and finishes to building material such as the main structure, roof, external walls, floors, doors and windows. The insurance arrangements can vary. The tenant may insure the property directly, although it is common for the landlord to arrange the insurance (as a means of being assured it’s in place) and charge the premium to the tenant.
The precise division of responsibility will always depend on the specific lease wording and on the extent of the property that’s actually been demised (leased).
This is significantly different from an internal repairing and insuring lease (IRI lease). Under an IRI arrangement, the tenant is responsible for the interior of its own premises, while the landlord keeps responsibility for the structure, exterior and common areas.
The landlord will usually recover a proportion of the cost of maintaining those other parts of the building through a service charge. This arrangement is common in multi-let office, retail and mixed-use buildings, where it would not be practical for individual tenants to take responsibility for the whole property.
The distinction between the 2 approaches is very important because the expression ‘repairing lease’ does not, by itself, tell an owner or occupier precisely what has been agreed. The lease must still be read and fully understood.
A substantial obligation for an inexperienced tenant
For an established business and experienced tenant, the expression ‘FRI lease’ will be familiar. For a newly formed company taking its first commercial premises though, it might sound like standard wording in a set of heads of terms. It might be standard, but the full implications must be understood.
A full repairing obligation can expose a tenant to the cost of repairing or replacing substantial elements of a building. On an older, period or listed property, those costs may be considerable and bear little relationship to the annual rent. The tenant may believe it has simply agreed to look after the premises while occupying them.
The tenant may, depending upon the lease wording, have accepted responsibility for historic disrepair, deferred maintenance or building components that are already approaching the end of their useful life. Government guidance for business tenants confirms that repairing responsibilities should be set out in the lease, while the RICS Code for Leasing Business Premises recommends that the obligations should be ‘appropriate to the lease length, the condition of the premises and the wider financial terms’.
A schedule of condition can be used to record the state of the property at the beginning of the lease and, where expressly incorporated into the lease, should limit the tenant’s obligation to returning it in no worse condition. And that limitation should be very deliberate.
A schedule that simply records building and premises condition is not necessarily the same as one that effectively alters the repairing covenant. Owners and tenants both need to understand whether it is being attached as evidence or as a limit on liability.
The strength of the covenant matters
When considering an FRI lease, it’s tempting to only concentrate on the words used in the repairing clause. However the financial capacity of the tenant expected to perform that obligation can be just as important.
A newly formed company might unknowingly accept a comprehensive repairing covenant while having only limited capital behind it. Its trading forecasts may allow for rent, utilities, wages and ordinary operating costs, but make little realistic allowance for major property repairs.
If the business starts to run into financial difficulty, expenditure on the building may be one of the first things paused. Of course this doesn’t necessarily mean the tenant is dishonest or irresponsible. It might just mean that the repairing obligation agreed at the beginning of the lease was not really aligned with the tenant’s financial resources. And this creates a risk for both parties.
The tenant may face a substantial and unexpected liability. The landlord might discover that an apparently strong covenant offers limited practical protection because the party responsible for performing it simply lacks the cashflow to comply.
In simple terms - a repairing covenant that is unrealistic for the tenant could offer the landlord less protection than it initially appears. So the covenant might well be enforceable, but is it commercially practical?
Lease clarity is not the same as commercial certainty
The truth is that even well-funded tenants often do not comply fully with their repairing obligations. In fact, in my experience it seems to be the majority.
Repairs get pushed back because they disrupt the ‘higher priority’ business operations. Responsibility for a particular action might be disputed. Building defects may develop slowly and stay unnoticed until mid-way through the lease term. Alterations might be carried out without permission, planning and/or building control consent or adequate records; and reinstatement obligations may receive very little attention until the tenant is packing up to leave.
By that stage, the landlord is very likely to be trying to recover possession of a unit that needs to be returned to a lettable ‘white box’ condition.
There could be missing ceiling tiles, damaged floors, removed services, redundant cabling, undocumented alterations or fixtures that the incoming occupier doesn’t want. The outgoing tenant may dispute the scope or cost of the works, or may already have vacated and become increasingly difficult to contact.
The contractual position might be absolutely clear to all involved, but the commercial position can be a lot less comfortable. The landlord might actually win the argument eventually but still lose time, rent and momentum.
Dilapidations do not provide a perfect remedy
Dilapidations can be described as breaches of lease covenants relating to the condition of a property, often including repair, decoration and reinstatement obligations. They can be addressed during the term or form the basis of a claim at or near lease expiry. RICS guidance recognises interim, terminal and final schedules within the overall dilapidations process.
For owners unfamiliar with the process, a terminal schedule can initially appear to produce a straightforward calculation based upon clear principles –
The tenant has failed to carry out works.
The landlord prices those works.
The tenant pays the cost.
The reality is very often more complicated.
The cost included within a schedule is not necessarily the amount that will ultimately be recovered. It’s very possible the parties will disagree over whether a breach exists, what work is reasonably required, the most appropriate remedy, the standard of repair or the cost of carrying it out.
In England and Wales, damages for breaches of repairing covenants are also subject to section 18(1) of the Landlord and Tenant Act 1927.
Its first ‘limb’ broadly limits the damages recoverable to the reduction in the value of the property caused by the disrepair. This works on the principle that a property in disrepair would achieve a lower value on the market.
Its second limb can limit or prevent recovery where the premises would be demolished, structurally altered or otherwise rendered valueless by the landlord’s intended works, so that the repairs claimed would be superseded. So this means (for example) if the building is to be demolished after the tenant vacates the property, it’s very unlikely the landlord could prove they’ve suffered a loss.
Note that Section 18 does not automatically apply in the same way to every item that might appear in a dilapidations claim. Repair, decoration, reinstatement and other breaches might need to be considered separately.
This is one reason specialist legal, building-surveying and valuation advice can become necessary. From an asset-management perspective, however, the wider point is simpler:
A dilapidations claim arises from a problem that has already occurred.
It’s never a substitute for preventing the problem.
A settlement does not necessarily restore asset performance
Even if a landlord succeeds in recovering money from the outgoing tenant, the building itself may still require work. The owner may need to appoint consultants and contractors, obtain various forms of legal consents, fund the works before the claim is settled and manage the entire programme.
During that period, the property might very well remain empty. Business rates, buildings insurance, security, utilities and other void costs continue relentlessly. A prospective tenant might be unwilling to commit to signing up for a new lease until the works are complete. A sale or refinancing may be delayed, or the condition of the building might affect the termsavailable.
So the loss experienced by the owner is not just limited to the repair bill. It can include lost rent, additional void expenditure, management time, delayed transactions and the loss of an opportunity to present the property to the market at the right moment.
A successful financial settlement can compensate in some ways, but it can’t give the owner back the time that has passed.
Older and listed buildings require particular attention
The risk can become more acute where the property is old, unusually constructed or has a listed status. Repairs to traditional buildings very often require specialist investigation, materials and workmanship. A defect that might appear relatively minor may be evidence of a larger problem involving moisture, movement, roofing, drainage or inappropriate previous repairs.
Listed status introduces another layer of complexity. Works that affect the special architectural or historic interest of a listed building is likely to require listed building consent, and unauthorised alterations can amount to a criminal offence. Historic England therefore recommends early discussion with the local authority conservation officer where there is uncertainty over whether consent will be required.
A tenant is unlikely to be able to replace historic fabric with the cheapest modern alternative and regard the repairing obligation as discharged. The materials, detailing and methods used will matter enormously.
This creates both cost and programme risk. It also increases the importance of ensuring that the tenant fully understands the building it is taking on, and that the landlord reserves appropriate oversight of what is happening to it.
The role of active management
Notwithstanding my commentary above, the FRI lease is still a valuable tool. The problem arises when the terms of the lease encourage the owner to become detached from the physical property itself. It’s quite common for a landlord to believe the building is being fully maintained as directed by the lease, simply because the rent is arriving on time.
At the end of the lease term though, the owner discovers that repairs just haven’t happened, alterations are badly documented (if documented at all) and the tenant has made little or no provision for reinstatement. Active management is vital to close the gap between the lease obligation and what is actually happening on site.
The most suitable approach will depend upon the asset, tenant and lease, but it could include:
a clear record of property condition at lease commencement;
periodic inspections undertaken by the landlord’s surveyor under an express right of access within the lease;
photographic records of all defects and alterations;
monitoring necessary compliance with all maintenance and statutory servicing obligations;
prior notification and discussion of all emerging repair issues;
appropriate licences/consents and reinstatement records for any alterations;
regular review of the tenant’s covenant strength;
early planning for lease breaks, expiries and possible vacancy;
and coordination between the asset manager, building surveyor and solicitor before positions become entrenched.
The objective most definitely is not to create an adversarial relationship. In fact quite the opposite. Early identification can give the tenant more time to plan, budget and undertake the works sensibly. It can prevent a minor and manageable defect from becoming a major building failure and reduce the likelihood of both parties entering an expensive dispute at the end of the lease.
Inspection and landlord intervention
A right for the landlord to inspect is only useful if it is clear and is actually exercised.
The lease should normally state the circumstances in which the landlord can enter the premises, the notice period required, the purposes of inspection and the steps to be taken when a breach is identified.
Depending upon the property and the commercial agreement, the parties’ solicitors may also consider provisions allowing the landlord to serve notice requiring repairs and, following continued default on the terms, enter the property to undertake the specified works and recover the cost from the tenant as a debt.
These provisions are often associated with the principles arising from Jervis v Harris and require careful drafting and operation. They should not be treated as a substitute for professional advice. Nor do they make tenant default painless. The landlord may still have to fund the work initially, manage the intervention and consider its effect on the occupational relationship.
They are likely, however, to provide an earlier way to protect the building rather than leaving the landlord to watch deterioration continue until lease expiry.
The lease is the beginning of the control, not the end
A well-drafted lease on FRI terms establishes an important contractual foundation, however effective protection usually has three layers:
1. The lease allocates contractual responsibility.
2. Active management can establish if that responsibility is being met.
3. An asset strategy determines what condition and specification the property will need at its next lease event.
The final point is easy to overlook, because the condition required for compliance with an existing lease may not be the same as the condition needed to attract the next occupier, achieve a sale or support refinancing. So the owner must therefore understand whether the tenant is truly complying, and also where the asset is going next.
An FRI lease does NOT remove the landlord’s property risk. It transfers substantial repairing and insurance obligations to the tenant, but the owner remains exposed to the consequences if those obligations are misunderstood, unaffordable, postponed or simply ignored.
That risk exposure can manifest through deteriorating building condition, a weakened tenant covenant, an extended void, unexpected capital expenditure or a loss of value at precisely the moment the owner wishes to sell, refinance or re-let.
The answer is not necessarily to impose ever more onerous repair conditions in the lease. Far better to make sure the obligation is clear, entirely realistic, aided by appropriate rights of inspection and intervention, and reinforced through active management.
The lease may define what is meant to happen, but the owner still needs to understand what is actually happening inside the property.
First published by Montbart Limited on 28th July 2026
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