FRI vs IRI leases: what property managers need to know

Two acronyms do more work in commercial property management than almost any others: FRI (full repairing and insuring) and IRI (internal repairing and insuring, often just "internal repairing"). They describe who is responsible for repairing and insuring the property, and that allocation drives everything downstream: the service charge structure, the maintenance regime, the dilapidations exposure, and even the rent.

This guide sets out the practical differences, the hybrid that dominates multi-let buildings, and the clauses that modify both.

FRI: full repairing and insuring

Under a true FRI lease, the tenant takes responsibility for the whole property (structure, exterior, interior) and either insures it or, far more commonly, reimburses the landlord's insurance premium.

The practical consequences:

• The tenant repairs the roof, the walls, the windows, the plant: everything, regardless of condition at lease start (unless limited, see below)
• The landlord's ideal position is a "clear lease" where the rent arrives with essentially no outgoings against it, which is why investors price FRI income more keenly
• The tenant's risk is real. A standard repairing covenant can require the tenant to put the property into repair, not merely keep it in the state they found it. Taking a 15-year FRI lease of a tired 1980s unit means inheriting its backlog

FRI is the natural structure for whole-building, single-let properties: the industrial unit, the standalone retail box, the self-contained office let to one occupier.

IRI: internal repairing only

Under an IRI lease, the tenant's repairing obligation stops at the interior of their demise, typically internal finishes, and inward from the internal face of the structural walls. The landlord retains responsibility for the structure, exterior and common parts, and insures the building (usually recovering the premium from tenants).

Practical consequences:

• The landlord carries the structural and external repair risk, and needs a funding route for it
• The demise definition becomes critical: are windows in or out? Window frames? The shopfront? Plaster on the structural wall (usually the tenant's) versus the wall itself (usually the landlord's)? Disputes live in these seams
• Common in shorter, smaller lettings: the unit in a parade, the floor of an older building, lettings where an FRI obligation would be uncommercial for the tenant

Effective FRI: the multi-let reality

Here's the version property managers actually run every day. In a multi-let building, no individual tenant can sensibly repair the roof or the lifts, so the structure is:

1. Each tenant is responsible for the interior of their own demise (like IRI), and
2. The landlord repairs, insures and maintains the structure, exterior, plant and common parts, recovering the cost from all tenants through the service charge

The result is called an effective FRI (or "FRI by way of service charge"): the landlord does the work, but the tenants collectively fund it, so the landlord's income remains clear. Economically it's FRI; operationally it's landlord-managed.

This is why lease type and service charge design are inseparable. The scope of the landlord's repairing covenant defines what can appear in the service charge budget, and the recovery clauses define what can be charged to whom: the recoverability matrix we describe in the complete guide to service charge budgeting. A cost the landlord is obliged to incur but the leases don't allow it to recover is a landlord cost, permanently.

The modifiers that change everything

Whichever label is on the lease, three mechanisms routinely modify the real position:

Schedule of condition. The repairing obligation is limited by reference to a photographic or descriptive schedule of the property's state at lease start: the tenant must keep it no worse than the schedule, not put it into full repair. Common on older buildings and shorter terms. For managers, the schedule must actually be attached, referenced and retrievable, because a limitation everyone remembers but nobody can produce is worthless at dilapidations.

Caps and exclusions in the service charge. Modern occupiers increasingly negotiate service charge caps (fixed or indexed), exclusions for inherent defects, or carve-outs from major plant replacement in the early years. Each one shifts cost back to the landlord and must be flagged per-lease in the budget process.

Insured risks carve-out. Standard in both structures: the tenant's repairing obligation excludes damage by insured risks (fire, flood, storm), which is what the insurance the tenant funds is for, except where the insurance is vitiated by the tenant's own act.

Why the distinction matters day-to-day

For a management handover or acquisition, the first tasks are always the same: read every lease, map the repairing and insuring obligations, note the modifiers, and build the recoverability matrix before the first budget is drafted. The label on the heads of terms ("FRI") tells you the intention; only the drafting tells you the position.

Common traps

1. Assuming the label. "FRI lease" in the marketing particulars sometimes turns out to be effective-FRI with a heavily capped service charge, a very different investment and management proposition
2. Losing the schedule of condition. The limitation exists only if it can be produced
3. Demise-boundary ambiguity. Windows, frames, shopfronts and conduits are where IRI disputes concentrate; map them per unit
4. Recovering the unrecoverable. Charging tenants for works outside the landlord's covenant or the recovery clause is the fastest route to a successful service charge challenge
5. Ignoring lease events. Repair and yield-up obligations crystallise at expiry, which is why tracking lease key dates across a portfolio is a discipline, not an admin task