The market has been firmly in the landlordís favour for some while now and although the signs are clear enough, hard evidence of a change is still lacking. Demand will inevitably fall this year as requirements are put on hold as a result of the turmoil in the financial markets and it is clear economic growth will slow significantly. In practical terms this is not automatically good news if you are an occupier. Firstly the current shortage of available space means rents will remain at their current levels until we see an increase in the number of tenants offloading surplus accommodation. Neither is it helpful if you are a tenant facing a rent review this year, because despite the likely drop in letting activity, the bulk of the transactional evidence will be historic and in the landlordís favour. The West End is still well ahead when it comes to the highest rents achieved to date and although Midtown and the City demonstrated significant gains last year, they still offer very good value by comparison. This differential is likely to persist, although the choice available for the average occupier is not much better whichever location is chosen. So against this background, what incentives can a tenant realistically hope to achieve when negotiating a new lease for office space? The concession of a rent free period is still an automatic feature of most office lettings, other than in very competitive circumstances or when a lease is assigned. It was originally intended to cover the period required for a tenant to complete partitioning and any other fitting out works, but is now generally recognised, as being an incentive as well. It is difficult to say how long this should be, because so many other aspects of the deal will influence what is agreed. However, assuming a five year lease without a break 4/6 months is usually achievable in the West End and 6/9 months in the City. Generally the longer the commitment the tenant gives, without an option to break, the longer the rent free period will be. Another incentive for the tenant to pay a higher rent is the offer of a shorter lease or the added flexibility afforded by a tenantís break option. However, in contrast to the days when 25 year leases with five yearly upward only rent reviews were the norm, it is now standard practice for small/medium size lettings to be based on a five year term or less. It is now much harder to agree a break after three years and the more likely outcome will be ten years with a break after five. However, landlords are holding out for 10 years without a break on new lettings in the West End. Break options are usually conditional to a greater or lesser degree. Penalty payments are sometimes attached and you may find the rent free period is either reduced or split either side of the break date. Certain lease compliance conditions can make it difficult for a tenant to serve a valid break notice and must be avoided. Head lease rent reviews usually influence the timing of a break option in the case of a sub-lease, because the same rent review pattern is commonly imposed on the sub-tenant by virtue of the head-lease conditions on sub-letting. This is a good moment for both parties to have a break, since it avoids the complications of going through the process of a rent review. A tenantís break option is a very valuable benefit and all the more so when it looks likely that rents will fall. This is the only practical safety net for a tenant who signs a lease at the top of the market and then needs to dispose of it. Even if a significant rent penalty is attached, it is often still good value, when all the ongoing costs associated with the lease are taken into account, regardless of the sub-letting or assignment alternatives. This is even more relevant given last years Budget provisions which come into effect in April, when the 50% relief on empty property rates is withdrawn. This will be compounded by the Rating revaluation due in April 2010, which will very likely be based on top of the market rental values pertaining in April this year. Shorter, more flexible leases are an established part of the market, but they can still include terms more appropriate for a much longer lease. If the space is new, the tenant will incur costs fitting it out from scratch, which may have to be written off over a relatively short period, plus the cost of reinstatement on moving out. The condition at the start of the lease is not necessarily the basis for determining what the tenant needs to do before it is handed back at the end. This point needs to be considered carefully, particularly in the context of second hand accommodation and any reinstatement limited by an agreed schedule of condition at the outset. Service charges are another area where a tenant can be exposed to above average costs for a short period, particularly in older buildings. The lease might only be for five years but if the landlord needs to replace the lift in year three, a full contribution will still be demanded. Therefore a service charge cap can be a valuable term to agree as part of the deal. Another influence on the length of leases has been the introduction of Stamp Duty Land Tax. Whereas the old stamp duty was about 2% of the average annual rent, under the new system it is 1% of the total rents due including any VAT, discounted by 3.5% to arrive at a net present value figure. The threshold at which the tax becomes payable favours lettings of smaller units but given recent rental increases fewer transactions will be exempt and the duty payable by comparison to the old system is significantly more. So what about rent reviews? The upwards only rent review clause, (still usually on a five yearly basis), has survived despite several market cycles and government pressure for lease reform. A coincidental break option is still the closest most tenants will get to achieving an upwards/downward result, given a degree of brinkmanship and assuming the market evidence is favourable! In response to the Governmentís commitment to promote greater choice and flexibility in the market, the Voluntary Code of Leasing Practice 2002 was updated last year as the Code for Leasing Business Premises in England & Wales 2007. This is only voluntary and those landlords who have indicated a commitment to stand by it are supposed to offer priced alternatives to different lease terms on request, notably upwards only rent reviews. However such pricing can take into account the differing risk criteria and in a landlordís market it will come as no surprise if the alternatives are considerably more expensive. If you are an occupier considering a move it is worth noting that Landlordís always appoint an agent and therefore so should you if you want to get the best deal. And finally, remember that getting into a lease is always much easier than disposing of it. Charles Henriques BSc MRICS REMroberts Ltd