SIPP Property Maintenance: Who Pays for Repairs?

The overwhelming majority of commercial property held in SIPPs is let on a full repairing and insuring (FRI) lease. Under an FRI lease, the tenant is responsible for all repairs — internal and external, structural and decorative — and for reimbursing the landlord's buildings insurance premium. The landlord (the SIPP) receives a net rent with no deduction for property costs.

This structure is strongly preferred by SIPP providers and lenders because it makes the property cost-predictable for the fund. The pension fund receives an income stream without unexpected maintenance bills eating into returns. For lenders, it also means that rental income is a reliable indicator of the fund's ability to service the mortgage.

If you are structuring a lease between your SIPP and your own trading company, the lease should be on FRI terms — both because this is market standard and because it is the arrangement most acceptable to SIPP providers. Leases that leave the landlord responsible for repairs create an indirect benefit to the connected tenant that could be characterised as an unauthorised payment.

While an FRI lease makes the tenant responsible for all repairs, this needs to be qualified at the start of the lease by a schedule of condition. This is a factual photographic and written record of the property's condition at the date the lease begins. It limits the tenant's repairing obligation to returning the property to the condition shown in the schedule — preventing the tenant from being held responsible for deterioration that predates their occupation.

A schedule of condition is particularly important for older properties where some degree of wear or deterioration already exists. Without one, a tenant on an FRI lease could theoretically be required to put the property in better condition than it was when they took it — an unreasonable and often unenforceable obligation that leads to disputes at lease end.

Your solicitor will advise on whether a schedule of condition is appropriate and can instruct a surveyor to prepare one. See our guide to SIPP property surveys for how this fits into the overall due diligence process.

Even on a full FRI lease, there are areas where the SIPP as landlord retains responsibility or exposure:

• Void periods: If the property becomes vacant — between leases or following tenant default — the SIPP bears all maintenance and insurance costs until a new tenant is found. See our guide on what happens if your SIPP property is empty.
• Asbestos management: As landlord, the SIPP has a legal duty to maintain an asbestos register and management plan. Where asbestos is in a dangerous condition, the duty to remediate may fall on the landlord rather than the tenant.
• Common parts and shared areas: Where a property has common parts — shared car parks, entrance lobbies, or access routes — the landlord typically retains responsibility for maintaining these, recovering costs through a service charge.
• Structural defects arising from latent defects: Where a defect was not visible at the time the lease was granted, courts may sometimes limit the tenant's liability depending on the lease drafting.

At lease expiry or termination, the SIPP as landlord has the right to claim "dilapidations" — compensation for the tenant's failure to comply with their repairing obligations during the lease. In practice, this involves a schedule of dilapidations prepared by a surveyor, identifying all items of disrepair and estimating the cost of remediation.

Dilapidations claims are common at the end of commercial leases and can be significant — particularly where a long lease has run without the tenant maintaining the property to the required standard. The presence of a schedule of condition at lease start limits the claim to deterioration during the lease, making the scope clearer for both parties.

If your SIPP's tenant is your own business, dilapidations need careful handling. HMRC will scrutinise any payment made or waived between connected parties. Dilapidations settlements should be at arm's length and properly documented, with independent surveyor involvement on both sides.

Even on an FRI lease, regular communication with your tenant about property condition is good practice. An annual or biennial property inspection — conducted by or on behalf of the SIPP provider — allows any maintenance shortfalls to be identified and addressed before they become serious issues at lease end.

For properties let to your own business, there is an additional incentive to maintain good condition: the property is your fund's primary investment asset, and its value at retirement — when you plan to sell — depends on its condition. A well-maintained property with a clear maintenance history commands a better price and attracts better tenants than one that has been neglected.

Budget for minor maintenance expenses even on FRI leases. There will always be minor items — external security lighting, common area maintenance, insurance excesses — that fall outside the tenant's obligation or arise during void periods.