FRI lease explained

An FRI lease, a full repairing and insuring lease, is the standard form of commercial lease in the UK, and it is the structure on which most industrial investment is bought and sold. Under it, the tenant takes on the cost of repairing and insuring the property, so the landlord receives a rent that is clear of those outgoings. That single feature, a rent net of repair and insurance, is why FRI leases sit at the centre of how industrial property is valued and financed: the investor is buying a clean income stream rather than a building with a repair bill attached.

This guide explains what an FRI lease is, exactly what a tenant takes on, how the structure is delivered on single lets and on multi-let estates, how it compares with the internal repairing alternative, and why the repairing basis matters so much to value and to lenders. We arrange finance on industrial property let on these terms as a broker and introducer, not a lender, and we are not solicitors. A lease is a long-term legal commitment, so have a commercial property solicitor review any lease before you sign or buy; everything here is general information, not legal advice.

What does FRI stand for in a lease?

FRI stands for full repairing and insuring. It describes a lease under which the tenant is responsible, directly or by reimbursement, for the full cost of repairing and insuring the premises for the duration of the term. The landlord's position is that the rent received is clear, or net, of those costs, which is why FRI rents and the values built on them are quoted on a clear basis. The term is shorthand for an allocation of risk and cost, not a single standard clause, so the actual obligations live in the detailed wording of the repair, insurance and reinstatement provisions.

The practical effect for a tenant is significant. On a true FRI lease the tenant must keep the property in repair, which the courts have long held can mean putting it into repair even if it was not in good condition at the start, unless the lease limits the obligation. The tenant typically also reimburses the landlord's buildings insurance premium and bears the cost of complying with statutory obligations. The combined effect is that the tenant carries the building's running and standing condition, while the landlord enjoys a rent insulated from those costs.

What does a tenant take on under an FRI lease?

Under a full FRI lease of a whole building, the tenant typically takes on internal and external repair, including the structure, roof, walls and, on many industrial units, the loading doors, yard surfacing and drainage serving the demise. The tenant reimburses the landlord's buildings insurance, and is responsible for statutory compliance affecting the premises and for the cost of works needed to comply. At the end of the term, the dilapidations regime captures any failure to leave the property in the contracted state, which our guide to dilapidations covers in detail.

Whether an FRI lease includes the roof and structure is a frequent and important question, and the answer is yes on a true FRI lease of a whole building, unless the lease expressly carves them out or a schedule of condition limits the obligation. That is a material commitment on an older industrial unit, where the roof and cladding can be the largest repair items, which is exactly why the repairing basis and any schedule of condition should be negotiated before signing rather than discovered at lease end.

1. Repairing

   Keep, and potentially put, the premises in good repair for the term, including structure, roof and external elements on a whole-building FRI lease, subject to any schedule of condition.

2. Insuring

   Reimburse the landlord's buildings insurance premium, with the landlord usually arranging the policy and the tenant paying the cost.

3. Compliance

   Meet statutory obligations affecting the premises and fund the works needed to comply, which can include energy efficiency works depending on the drafting.

4. Yielding up

   Return the premises at the end of the term in the contracted state of repair, with dilapidations capturing any shortfall.

What is the difference between FRI and IRI?

The main alternative to FRI is IRI, internal repairing and insuring. Under an IRI lease the tenant repairs only the internal, non-structural parts of the premises, while the landlord retains responsibility for the structure, roof and external repair, and usually arranges and bears the building insurance, often recovering some of it through the rent or a charge. The difference is the allocation of the big-ticket repair items, the structure and roof, which fall on the landlord under IRI and the tenant under FRI.

The choice shapes the rent and the risk. An IRI tenant generally pays a lower effective cost of occupation than they would under FRI for the same building, because the landlord keeps the structural risk, but the landlord prices that retained risk into the deal and into the value. On a multi-let industrial estate, a true FRI position on every unit is impractical, so landlords typically grant leases of individual units on internal repairing terms and recover the cost of common-parts and structural repair, plus insurance and management, through a service charge, achieving an effectively FRI net income at estate level.

FRI versus IRI: who carries what

Responsibility	FRI lease	IRI lease
Internal, non-structural repair	Tenant	Tenant
Structure and roof repair	Tenant	Landlord
External repair	Tenant	Landlord
Buildings insurance	Tenant reimburses	Landlord, often recovered in part
Net rent to landlord	Clear of repair and insurance	Reduced by retained obligations

On an estate, the practical equivalent of FRI is often delivered through the service charge rather than a single covenant, so a buyer reading a multi-let investment should look at the combined effect of the unit leases and the service charge, not just the words FRI or IRI on a summary. Our work on multi-let industrial estates covers how those structures fit together.

Why does the repairing basis matter to value and finance?

The repairing basis matters because it determines whether the landlord's rent is a clean income or a gross figure carrying a repair liability. Investment value is generally calculated on net income, so an FRI lease, or an effectively FRI position on an estate, produces the clearest income to capitalise into a value. An IRI lease, where the landlord carries structure and roof, produces a less clean income that a valuer and a buyer must adjust for the retained repairing cost and risk. Two identical buildings on FRI and IRI terms can carry different values for that reason alone.

Lenders read the lease as hard as the building, and the repairing basis is part of that read. On an FRI lease the income the loan is sized against is clear of repair and insurance, which is the cleanest position for debt. Where the landlord retains structural obligations, a lender will take a view on the retained cost and the building's condition, and on an older unit may want a building survey and a sinking fund or capex reserve. The strength and length of the income, the repairing basis and the tenant covenant together decide how much debt the lease supports.

Investment value is built on net income, so an FRI lease, by handing repair and insurance to the tenant, produces the cleanest income for a valuer and a lender to work from.

For a buyer the takeaway is to read the repairing basis as a price and finance variable. A long FRI lease to a strong covenant over a sound building is the gold standard for industrial investment debt; an IRI lease, a short term, a weak covenant or an older building with no schedule of condition each need pricing in. We see the difference in lender appetite on almost every let industrial investment we arrange, and our commercial mortgage and refinance pages set out how the debt is built. Have a solicitor review any lease before you commit; this is general information, not legal advice.