People often search for the “four types of leases”, but that phrase is technically imprecise in UK commercial property. An FRI lease and an IRI lease are lease structures; a tenancy at will is a short-term tenancy; and a genuine licence to occupy is not a lease at all. In practice, however, these are four common occupancy structures that landlords and business occupiers compare when deciding how premises should be held.
This guide explains those four structures in practical terms, including repair obligations, security of tenure and the point at which the wording of the agreement matters more than the label.
1. Full Repairing and Insuring (FRI) lease
An FRI lease is a common structure for longer commercial lettings of standalone buildings such as shops, offices, warehouses and industrial premises. The tenant typically takes on extensive repairing obligations, often covering the exterior, roof and structure, while the landlord usually arranges buildings insurance and recovers the premium from the tenant. The exact allocation depends on the wording of the lease.
This can be a significant financial exposure, particularly if the building is already in poor condition. A Schedule of Condition can help only if the lease expressly limits the repairing covenant by reference to it; the photographs and written record do not, by themselves, override a broad repair obligation.
2. Internal Repairing and Insuring (IRI) lease
An IRI lease is common in multi-occupancy buildings such as office blocks and retail centres. The tenant’s direct repair obligation is usually limited to the interior of its own premises, while the landlord remains responsible for the structure, exterior and common parts and may recover those costs through a service charge. “IRI” is shorthand rather than a statutory formula, so the actual lease wording still controls.
For tenants, this is generally a smaller financial exposure than an FRI lease, but service charges can be unpredictable, especially if major works are carried out to the building during the term.
3. Tenancy at will
A tenancy at will is a short-term tenancy with no fixed contractual term. It is commonly used while a formal lease is being negotiated, and it is typically terminable at any time by either party, subject to the wording and circumstances. Because it is designed to be temporary, it does not provide the security of tenure associated with a protected business tenancy.
That flexibility is useful while a formal lease is being finalised, but it is not a substitute for a properly documented longer-term arrangement where the occupier needs certainty.
4. Licence to occupy
A licence to occupy gives permission to use premises without creating a lease, provided the arrangement is genuinely a licence. It normally does not give the occupier exclusive possession and is usually personal rather than freely assignable. Genuine licences are commonly used for serviced offices, shared space and other flexible arrangements. For a fuller comparison, see our licence to occupy vs commercial lease guide.
One important point: the law looks at the substance of an arrangement, not just its heading. If an agreement labelled a “licence” in fact grants the occupier exclusive possession for a term, the court may treat it as a tenancy or lease depending on the circumstances. That distinction can affect renewal rights and the steps needed to recover possession.
Not sure which structure you're being offered?
Heads of terms and draft leases do not always use these labels consistently. The operative clauses on repairs, insurance, service charge, exclusive possession and renewal rights are what determine the practical effect. Our lease drafting and review service and lease terms negotiation service can help before you commit.
Four types of leases: a practical UK comparison
| Structure | Repairs & insurance | Security of tenure | Typical use |
|---|---|---|---|
| FRI lease | Tenant usually has broad repair liability; landlord often insures and recharges | Potentially, if Part II of the 1954 Act applies and is not contracted out | Standalone commercial units; longer terms |
| IRI lease | Tenant usually repairs interior; landlord deals with structure/common parts, often via service charge | Potentially, if Part II of the 1954 Act applies and is not contracted out | Multi-occupancy buildings |
| Tenancy at will | Depends on the short-term agreement | No 1954 Act security of tenure as a tenancy at will | Temporary occupation while a lease is negotiated |
| Licence to occupy | Depends on licence; often more limited occupier obligations | No statutory lease-renewal right if it is a genuine licence | Serviced/shared space; flexible short-term use |
Which of the four is right for you?
The right structure depends on how long you plan to occupy the premises, how much repairing and service-charge exposure you are willing to take on, and whether security of tenure matters to the business. Before agreeing the commercial deal, it helps to get the heads of terms clear and to understand whether the proposed tenancy will be protected or contracted out of the Landlord and Tenant Act 1954.
These four are useful starting points, but they are not a complete legal taxonomy of UK commercial leases. Gross, net, turnover and ground-rent structures may also appear, and repair, insurance, service charge and renewal rights can be combined in different ways. Our complete guide to the different types of commercial leases in the UK covers the wider range.
Frequently asked questions
Is a licence to occupy legally the same as a lease?
No. A genuine licence gives permission to occupy without creating a leasehold estate and does not itself confer statutory business-tenancy renewal rights. However, courts look at the substance of the arrangement, so an agreement labelled a licence can be treated as a tenancy if it grants the legal characteristics of one.
What’s the main difference between an FRI and an IRI lease?
An FRI lease usually gives the tenant broad responsibility for repair of the whole premises, while an IRI lease normally limits the tenant’s direct repair obligation to the interior. In multi-occupancy buildings the landlord may still recover structural and common-part costs through a service charge, so the lease wording and any service-charge cap matter.
Can a tenancy at will turn into a full lease?
Yes. A tenancy at will is often used as a temporary bridge while a formal lease is negotiated. It should remain genuinely temporary; if occupation continues and the parties’ conduct changes, the legal character of the arrangement can become more complicated.
Do I need a solicitor before signing any of these?
It's strongly advisable. The practical effect of a lease often comes down to a handful of clauses on repairs, insurance and renewal rights, and these aren't always obvious from a quick read of the document.
If you're weighing up which lease structure fits your situation, our commercial property solicitors can review the terms and explain what you're actually agreeing to before you sign.