Well-maintained premises are essential for the smooth operation of a business. Promptly addressing repairs prevents bigger issues down the line, but when it comes to maintenance, where do the responsibilities lie? The answer can be found in your lease agreement. 

In this article, we outline the common types of commercial space leases, including Full Repairing and Insuring (FRI) and Internal Repairing and Insuring (IRI) leases. We also compare what different lease types mean for you as a commercial tenant.

What is a commercial lease?

A commercial rental lease is a legal agreement between a business and a landlord or company. The business is allowed to operate on the property for a designated period of time in exchange for paying rent. 

There are varying types of commercial leases, including FRI and IRI. The length of a lease will depend on the long-term plans of the business, such as whether it intends to expand its operations in the near future. The type of lease will also define whether the business or landlord is responsible for elements like maintenance and insurance. 

What is a Full Repairing and Insuring (FRI) lease?

With an FRI lease, the tenant is responsible for both external and internal maintenance, including:

• Internal and external repairs – Renters are responsible for any interior or exterior maintenance. This can include repairs for fixtures, fittings, and surfaces, as well as structural elements like walls, foundations, and roofs
• Dilapidations – Tenants are responsible for returning the property to the state stipulated in the lease. This includes dealing with any current dilapidations.
• Building insurance – The landlord will typically arrange building insurance to protect against appropriate dangers, such as flooding, fire, or break-ins. While there can often be flexibility in choosing an insurance provider, tenants will usually be required to cover costs.

What is an Internal Repairing and Insuring (IRI) lease?

With an IRI lease, the landlord takes responsibility for maintenance of the exterior of the building (roof, gutters, etc) and building insurance. This means:

• The tenant does not need to cover structural maintenance
• The building is insured by the landlord
• The tenant may still need to insure the contents of their unit

This type of lease offers peace of mind, as tenants are not responsible for managing repairs or insurance for the building itself. However, there may be higher service or facility charges to offset the insurance costs.

Other commercial lease types

Depending on the type of property you are looking for and with whom, you may find a variety of other leasing options.

• Ground Lease – For a ground lease, the tenant will have a long-term lease of the land. They can build improvements, which they will also take ownership of until the lease expires. 
• Fully Outsourced Tenant Lease (FOT) – With a fully outsourced tenant lease, the landlord will outsource the tenant and property management responsibilities to a third-party company. 
• Turnover-Based Lease (TBL) – A lease agreement where at least part of the rent is a percentage of the tenant’s turnover. This is far more common for retail commercial spaces.
• Double Net/ Triple Net Lease – With a Double Net Lease (DNL), a commercial tenant is responsible for paying insurance and property taxes, while the landlord covers internal maintenance. For a Triple Net Lease (NNN), a tenant is responsible for insurance, property taxes, maintenance, and repairs.
• Authorised Guarantee Agreement Lease (AGA) – A lease where the outgoing tenant of a property agrees to guarantee the incoming tenant’s ability to satisfy lease obligations. This includes rent, maintenance, and so on. AGA leases are common for commercial lease transfers, as they help protect landlords from any uncertainty.
• Hybrid Lease Agreement – A more flexible leasing option. While still part of a fixed-term lease, tenants will also share space with other businesses on the property, such as meeting rooms or staff areas. This helps businesses enjoy the flexibility of a larger, more diverse office for less.

Which lease type is most appropriate for your business?

Both FRI and IRI leases have their advantages, and the most suitable option will depend on your business needs: 

• An IRI lease keeps maintenance responsibilities to a minimum, making it easier to focus on business operations. However, service charges may be higher. Properties in a poor condition may also have more hidden maintenance costs for which the renter will be liable.
• An FRI lease provides greater control and predictability regarding repairs and insurance, but requires the tenant to manage upkeep and associated costs.

It’s always important to review lease documentation carefully to understand your specific responsibilities and commitments.

Maintaining a business-ready property

When responsible for repairs and maintenance (with an FRI lease), it’s advisable to conduct regular checks. This is far more convenient than waiting for issues to escalate or attempting to manage a backlog of repairs at the end of your lease.

Regardless of your lease type, it’s good practice to ensure you have an accurate Schedule of Condition at the start of the tenancy. This document records the property’s condition at move-in to provide clarity on maintenance expectations when the lease ends.

Are you interested in discussing a commercial property lease? For any questions about lease terms or maintenance responsibilities, please contact Mileway today. We’ll be happy to help.

 

FAQs

How do commercial leases work?

In the UK, commercial leases work according to several defined elements:

• The type of property, as well as a legally accurate description of fixtures, fittings, and so on
• The base rent to be paid and how often (options such as turnover-based lease may have additional costs)
• The tenancy and renewal terms, including the end date (if applicable)
• Any security deposits and terms relating to deductions
• Rules regarding subletting
• Options for lease termination
• Responsibility for insurance

The terms for a commercial property lease can be strict. Tenants responsible for maintenance will be expected to keep the property to an appropriate standard. 

What does triple net mean on a commercial lease?

‘Triple net (NNN)’ refers to paying the three primary expenses of a rental commercial property:

• Insurance
• Property tax
• Repairs and maintenance

It is similar to a Double Net (NN) agreement, for which a tenant will pay for insurance and taxes, but not repairs or maintenance.

What rights do commercial tenants have without a lease in the UK?

Commercial tenancy agreements can function in the UK without a lease, but the rights of a tenant can be limited. For example, they may not have entitlement to:

• Fixed notice periods for evictions or tenancy terminations
• Clear responsibilities for repairs and maintenance
• Protection against rent changes
• Proper channels and rights for raising disputes

The precise rights the renter does have will depend on the arrangement. For example, if the landlord has been accepting rent regularly, the tenant may be entitled to:

• Notice before and protection from eviction
• Covering maintenance and repairs
• Renewing the tenancy agreement

Better property providers do not operate commercial tenancies without lease agreements. Landlords should not only make lease terms clear but also offer proper support and communication to ensure seamless management.

Are commercial leases paid monthly?

Commercial leases can be paid monthly, quarterly, or however else the lease agreement specifies. Different payment periods may be more beneficial for certain clients, depending on the nature of the business and type of commercial premises.

Are commercial leases transferable?

Yes, it is possible to transfer a commercial lease to another party. However, a tenant must obtain the landlord’s consent, and the conditions for the transfer may vary. 

Can a commercial landlord refuse to renew your lease?

In the UK, commercial tenants are generally protected in terms of lease renewal. Unless a landlord has a specific, justifiable reason not to renew a lease, the tenant can apply for renewal under the Landlord and Tenant Act of 1954.

A landlord can only generally refuse to renew a commercial lease if:

• They wish to develop the property
• The tenant has repeatedly failed to pay rent on time
• They have their own business for which they want to occupy the property
• The tenant has failed to meet responsibilities for repairs and maintenance

Can a commercial lease automatically renew?

No, commercial leases do not renew automatically. This only applies to residential leases. However, a commercial tenant can apply for renewal under the Act of 1954, as long as their landlord lacks a valid reason to not consent to the renewal.