In the Scottish commercial property market, full repairing and insuring (“FRI”) leases remain the most common leasing structure. For tenants, particularly those taking occupation of older buildings, the repairing obligations contained in an FRI lease can represent their greatest financial risk. If you are considering entering a commercial property lease, understanding the legal framework around repairs and how a Schedule of Condition can limit liability is essential.
What repair obligations does an FRI lease place on tenants?
Under an FRI lease, the tenant is responsible for repairs and maintenance of the leased premises, often including the structural parts of the premises such as roofs, foundations and external walls.
In the case of @SIPP (Pension Trustees) Ltd v Insight Travel Services Ltd (2015) CSIH 91, the court confirmed that an obligation to “keep in good and substantial repair” generally obliges the tenant to put the premises into that condition, even if they were in disrepair at the start of the lease. It also established that, in the absence of a Schedule of Condition, a tenant may be liable for pre-existing defects.
This means that a tenant entering into an FRI lease for premises “as seen” could be liable for pre‑existing disrepair and historic deterioration - costs that can significantly exceed the annual rent.
What is a Schedule of Condition in a commercial lease?
A Schedule of Condition provides a method of limiting the tenant’s repairing obligation. It is a detailed record of the condition of the premises at the start of the lease and is typically incorporated by reference as part of the lease documentation. Although Schedules of Condition can vary in format, they should always contain a clear and detailed description of the state of the premises, supported by high‑quality photographs, to robustly evidence the condition and strengthen the tenant’s position.
If properly incorporated into a lease, a Schedule of Condition can help limit a tenant's repairing obligations by providing a record of the premises’ condition at the start of the lease. In general, the tenant may only be required to return the premises in substantially the same condition, rather than improve or upgrade it.
A Schedule of Condition can be particularly important where a premises has existing defects or wear and tear. By clearly documenting the condition at the outset, it can help reduce disputes about the tenant's repair responsibilities at the end of the lease.
When is a Schedule of Condition most valuable?
Schedules of Condition are most valuable in:
- Older buildings, where age‑related deterioration is inevitable.
- Short‑term leases, where tenants are reluctant to undertake significant repair works.
- Premises with visible wear-and-tear.
In multi‑let buildings, using a Schedule of Condition can help distinguish the tenant’s repairing obligations from those of the landlord relating to common parts or the building structure.
What are the limitations of a Schedule of Condition?
A Schedule of Condition is only as strong as its drafting. Scottish courts apply a strict approach to contractual interpretation, meaning any ambiguity may be read against the tenant who seeks to rely on it. The repairing clause must clearly state that it is subject to the Schedule of Condition, otherwise standard FRI wording may prevail and override the intended limitation.
Schedules should be:
- professionally prepared (often by a surveyor),
- comprehensive and descriptive,
- supported by dated photographs, and
- clearly annexed or incorporated into the lease.
Poor‑quality Schedules of Condition can lead to disputes where the repair obligation potentially defaults to a more onerous repair standard.
Schedules of Condition are effective only in capturing visible defects; hidden or latent issues cannot be evidenced through photographs alone. Unless the lease contains specific exclusions, the tenant will also be responsible for repairing and maintaining plant and machinery, such as lifts, air‑conditioning systems, and boilers, which may have underlying issues not apparent from a visual inspection. Tenants should therefore consider commissioning appropriate specialist surveys or reports before the lease commences to ensure they fully understand the extent of their potential liability.
How can tenants manage repair liability under an FRI lease?
For tenants entering an FRI lease, a Schedule of Condition is one of the most effective tools to manage repair liabilities. It provides clarity, limits exposure to historic defects and establishes a fair baseline for assessing the tenant’s obligations at the end of the lease. However, they are not a complete safeguard.
Given the potentially significant financial consequences of an unrestricted repairing clause, tenants should discuss the use of a Schedule of Condition at the earliest stage of lease negotiations, giving them far greater clarity and confidence as they take on their lease obligations.
If you are considering entering into an FRI lease, our Commercial Property team can advise on your repairing obligations and how a Schedule of Condition could help protect your position.
