There are ways tenants can get better lease terms - and now is the time to seek them, writes Barry Chambers

IT'S NO SECRET there's been a recent shift in the balance of negotiating power from the landlord to the tenant. But history shows this "tenant-friendly" period won't last forever. It will be no time before landlords start to flex their muscles again.

Given the cyclical nature of the property market, it would be prudent for tenants to minimise costs and maximise the opportunities presented to them in the current market.

So, what are these opportunities and how should tenants seek to take advantage of their position?

Rent: obvious, but rents are softer than last year. Even though "headline" rents are holding - particularly for modern office premises which are well located close to transport links - with a current vacancy rate of about 14.5 per cent, rental growth is constrained and landlords are in some cases more willing to negotiate a discount to their quoted rent.

Incentives: some landlords are determined to protect their "headline" rents. To do this and retain competitive advantage they are increasing the incentives on offer. Tenants should be in a position to negotiate quite attractive packages.

Available incentives, such as rent-free periods and landlord contributions to tenant fit-out, can be attractive - particularly if the tenant has a good covenant and is willing to take on a sizeable amount of space on a new medium to long term lease.

Lease terms: when the market analyses a deal, the focus is on the initial rent agreed which is naturally of great importance to both the landlord and the tenant. Beyond the term, frequency of rent review and the termination clause - if applicable - tenants generally pay less attention to the detail of the other lease provisions.

Once executed, the lease is usually filed away and forgotten about. It's only when there is a rent review looming or when the tenant wishes to move or an escalated service charge bill arrives that it will be dusted off.

This is when the tenant usually discovers to their dismay that their landlord holds all the aces. A lease is a contract which governs the relationship between a landlord and a tenant which can last for a very long time; most modern leases are for terms up to 25 years.

Tenants should treat the subordinate lease terms as equally important to the main terms when negotiating at the outset to provide for maximum future flexibility and to minimise ongoing occupational costs. Now is the time for tenants to fight back and reverse the one sided nature of leases!

Where possible the tenant should also plan for the future and negotiate expansion options in the building or business park they intend to occupy - that is, provide for their future space requirements and rent exposure at today's rates.

Surplus space: to minimise outlay and to improve revenue stream occupiers should review their current demise with a view to subletting any space which is not being used or which is underutilised. Their ability to do this may be restricted by an existing lease in the case of rented property and the requirement to reuse the space in the future should be considered when deciding on the subletting term.

Lease audit: one straightforward way of making cost savings is to carry out an audit of an existing lease or leases. A lease audit is an examination of all the charges which are passed through to the tenant by the landlord to determine that they are consistent with the lease provisions.

This process involves a thorough review of all invoiced amounts for occupational costs (rent, insurance and service charges) to ensure that the tenant is not paying any more than it should. This is a standard control procedure used by most companies, but some firms are unaware of the potential cost savings that a lease audit can provide.

Given that property occupation costs are the second highest outlay for most corporations a lease audit is an essential exercise.

Purchase premises from landlord: the purchase or lease question depends on each corporation's particular requirements. If a tenant is fortunate enough to have surplus funds sitting on deposit and has access to affordable debt finance, now might be an opportune time to make an offer to purchase their premises.

There is every likelihood in the current credit climate that a landlord may welcome the opportunity to source equity by selling at a discount.

The current uncertainty in the economy will undoubtedly lead occupiers to cautiously review their plans to expand existing operations or start a new venture. This review may lead to a delay or a postponement of plans in some cases. However, for those companies who do decide to implement their expansionary strategy this is a time to capitalise on a period of valuable and inevitably short lived opportunity.

Barry Chambers is a director of Chambers Corporate Real Estate Advisors