Many retailers occupy their stores on Fully Repairing and Insuring (FRI) leases. This means that while the responsibility for repairs and maintenance lies with them, they traditionally haven’t taken occupation until the landlord has completed a number of repairs and enabling works negotiated by both parties (known as the FRI works). However, it’s becoming more commonplace for retailers to ask landlords for ‘the cash’ to carry out the FRI works themselves instead. 

Many landlords refuse such requests, but there can be number of benefits to funding a retailer’s FRI works without having to physically carry them out. Doing so places responsibility for managing the contractor, quality of workmanship and project timescales with the retailer, meaning the landlord can’t be held accountable for quality issues or over-running works. Tenants can carry out FRI works at the same time as fitting out ready for opening, so there is greater potential for cost and time savings too.

The risk lies in the element of trust required, with some examples of tenants neglecting to carry out the agreed repair works despite funding being provided. Others have overlooked some necessary works and therefore asked for insufficient funding. This approach also means landlords can’t control the choice of contractor, but still have to invest time up front to agree a scope of works and required repairs. 

For both parties, success lies in establishing at the earliest possible date if ‘getting the cash’ is the tenant’s preferred option for FRI works. Likewise agreeing upfront who will pick up the fees for legal, design and project management consultants avoids conflict later. Some tenants want to include additional fit-out costs or request rent free periods for the duration of the FRI works, which can become points for negotiation. Ensuring the key dates and conditions are clear to all parties from the outset will help landlords maintain control, though they should monitor progress carefully throughout too. 

Never has it been more important to ensure the future-proofing of a building through correct and proper repairs than in the current retail market. For landlords, gaining a deep understanding of a retailer’s key drivers also makes working with them in the future more efficient for all. Taking all of this into account should place the landlord in a strong position to decide whether accepting or refusing to provide the funding for FRI works is in their best interest, and each request should be treated on a case-by-case basis. 

Further information

Contact Savills Building & Project Consultancy