If you're looking at renting commercial property in Edinburgh, whether that's a shop, office, industrial unit, restaurant, café or takeaway, you'll probably come across the term FRI lease.
FRI stands for Full Repairing and Insuring.
It's very common in commercial property, but it's also something tenants need to understand properly. Over the years we've seen businesses concentrate on getting the right location and negotiating the rent, only to pay less attention to the repairing obligations they're taking on.
The lease matters just as much as the rent.
So what does FRI actually mean?
In broad terms, an FRI lease is intended to put responsibility for repairing and maintaining the property, together with the cost of insuring it, onto the tenant.
That doesn't mean every FRI lease is the same.
The important thing is what your particular lease actually says and what has been agreed with the landlord.
Depending on the property and the lease, your responsibilities could include:
- Internal repairs and maintenance
- External repairs
- Roofs and structural elements
- Doors and windows
- Decoration
- Building services
- Reinstating alterations you've made
- Leaving the property in the condition required by the lease when you move out
This is why we always encourage tenants to look beyond the headline rent and understand exactly what they're taking on.
What if something was already wrong with the property?
This is an important one.
Don't automatically assume that because a problem was there before you moved in, it can't become your responsibility.
Depending on how the repairing clause is written, a tenant can potentially be required to put the property into the standard of repair required by the lease, even where some disrepair existed beforehand.
Take an older Edinburgh shop as an example. It might look absolutely fine when you view it, but there could be issues with the roof, windows, services or other parts of the building that aren't immediately obvious.
If you're taking on a wide repairing obligation, you need to understand what that could mean before you commit.
Who pays for the building insurance?
The "I" in FRI stands for Insuring, but in practice that doesn't necessarily mean the tenant arranges the buildings insurance.
It's common for the landlord to insure the building and recover the appropriate premium from the tenant under the terms of the lease.
It's another cost we would always suggest checking when you're considering a property. The rent is one figure, but you need to understand the other costs that come with occupying the building as well.
What about a Schedule of Condition?
A Schedule of Condition can be particularly useful where you're taking an older property or one that already has some wear, damage or deterioration.
Put simply, it's a record of the property's condition when you take it on, normally with photographs and written descriptions.
But there's an important point here.
Having a folder of photographs doesn't, by itself, necessarily protect you from your repairing obligations.
If it's agreed that your repairing responsibility is to be limited by reference to a Schedule of Condition, that needs to be properly reflected in the lease.
A suitably qualified building surveyor can prepare a professional Schedule of Condition and your solicitor can advise on how the agreed position should be dealt with in the lease.
What are dilapidations?
Another term you'll hear in commercial property is dilapidations.
When you come to the end of a lease, you may have obligations relating to repairs, decoration and putting back alterations you've made during your tenancy.
If those obligations haven't been met, the landlord may seek the appropriate remedies available under the lease.
The important thing from a tenant's point of view is to think about the end of the lease at the beginning of the lease.
It's much better to understand your obligations before signing than discover them when you're trying to leave the property.
Getting the Heads of Terms right
This is where an experienced commercial agent can make a real difference.
Once we've agreed the main points of a deal between the landlord and prospective tenant, IME will normally prepare the initial Heads of Terms.
These set out the commercial deal that's been agreed and, depending on the transaction, can cover things such as:
- Rent
- Length of lease
- Rent reviews
- Break options
- Rent deposit
- Repairing obligations
- Insurance arrangements
- Permitted use
- Any agreed Schedule of Condition
- Other important terms specific to the deal
We've been involved in commercial property transactions for many years and, in our experience, getting these points clear at the outset can save a lot of unnecessary time and cost further down the line.
The aim is to get the commercial deal agreed between the parties before the solicitors start preparing and negotiating the formal legal documentation.
Use a solicitor who understands commercial property
We always recommend that both parties use solicitors experienced in Scottish commercial property.
Once we've agreed the Heads of Terms, they're normally passed to the respective solicitors to deal with the formal lease documentation and provide legal advice to their clients.
A good commercial property transaction is a team effort. The landlord, tenant, agent and solicitors all have their own part to play.
From our experience, deals tend to progress far more smoothly when everyone works from clearly agreed Heads of Terms, communicates properly and deals with genuine issues as they arise.
The solicitor is there to advise you on the legal wording and implications of the lease and make sure you understand the obligations you're accepting before you sign.
Do you need a survey?
Not every property is the same.
If you're taking a relatively modern unit in good condition, your concerns may be very different from someone taking an older shop, restaurant or industrial building.
Where you're accepting significant repairing responsibilities, it may be sensible to have a suitably qualified building surveyor inspect the property.
They may spot things that you won't necessarily see during a viewing, and it's far better to identify those issues while the deal is being put together than after the lease has been signed.
Don't just compare the rent
This is probably the biggest point we'd make to anyone looking at commercial premises.
A property at £20,000 a year isn't necessarily cheaper to occupy than one at £22,000.
You need to look at the whole picture – repairing obligations, insurance, business rates, service charges where applicable and the other terms of the lease.
The right property isn't simply the one with the lowest rent. It's the one where the property, location, costs and lease terms work for your business.
Looking for commercial property in Edinburgh?
IME has been helping businesses and landlords with commercial property across Edinburgh for many years.
Whether you're looking for a shop, office, industrial unit, restaurant, café, takeaway or other commercial premises, we'll help you find the right property, negotiate the commercial deal and prepare the Heads of Terms to help move the transaction towards completion.
And if you're new to commercial property, don't worry about knowing all the terminology. That's part of what we're here for.
Have a look at our latest commercial properties available to rent and buy, or speak to the IME team about what you're looking for.
This article is intended as a general guide only and does not constitute legal or surveying advice. Every property, transaction and commercial lease is different. IME recommends taking advice from a solicitor experienced in Scottish commercial property and, where appropriate, a suitably qualified building surveyor before entering into a commercial lease.