One characteristic of the downturn in the property market is a swing in the balance of power towards buyers and business tenants involved in lease negotiations.

In the last twelve months, we have seen a general decline in new business tenancies coupled with an unfortunate but inevitable rise in commercial tenant insolvencies. The result has been a significantly reduced demand for commercial property tenancies causing landlords to suffer lower rental incomes and increased costs from holding empty properties.

Simple economics tells us that low demand coupled with high supply moves scarcity power away from landlords and into the hands of tenants.

Whilst it is in both parties interests to ensure that a tenant's business continues to the end of the tenancy, those tenants shortly coming to the end of their existing lease who are looking to renew or relocate hold the upper hand in lease negotiations.

In particular tenants should be seeking competitive rents coupled with favourable rent review provisions, rent free periods and adequate break clauses all of which will continue to benefit a business long into the future and beyond the current downturn.

In our experience many landlords are taking a realistic approach to the current climate and are working with their existing and prospective new tenants in order to survive the recession.

Tenants should therefore be looking to take the lead in active lease negotiations to take advantage of increased flexibility on the part of landlords and should be involving their solicitors and other professional advisors in the negotiations in order to achieve the best possible lease.

Those looking at investing in the freehold of a property rather than taking a lease should be wary of title matters that could have an impact on their future use of the property.

Buyers of freehold land are often shocked when they find out that there may still be restrictions on how that can use their property.

One way use can be restricted is as a result of restrictive covenants being imposed by previous owners.

Many freehold properties are subject to these restrictions, confusing purchasers who expect to buy the land and buildings outright, ‘free from incumbrances'. However, thanks to the evolution of land law over the years, buyers are at risk as owners are able to transfer land subject to any of a variety of rights, restrictions, obligations and even charges.

The limitations caused by restrictive covenants often mean that a simple course of action, such as extending a building on freehold land, can be costly if the property is subject to a covenant requiring consent for alterations and additions.

Certain covenants are ongoing, for example the restriction could state that land should be used for one dwelling house only, so if developing the land was the intention, this would be in breach of the restriction.

It is vital to check title deeds before signing any contracts. A purchaser's first step should be to visit a solicitor so they can review the deeds and identify any covenants, and consider the wording and context of the covenant to check whether it is valid and enforceable.

Problems can arise when the covenant appears valid and enforceable and the buyer's intended use of the property will put him in breach. It is important to be aware that this can be the case even if planning permission has been granted for the intended use. However, if such a restrictive covenant is in place, solving it isn't always just a case of reaching for the cheque book.

Depending on the age of the covenant and the parties to the deed that created it, one option is to go ahead and breach (or carry on breaching) the covenant without making enquiries of or alerting the person who has the benefit of the covenant. Clearly there is risk involved in such a strategy. The most common protection if choosing such a strategy is to put in place restrictive covenant indemnity insurance, often for a modest premium.

Alternative strategies include seeking the consent of the party benefiting from the covenant, or applying to the Lands Tribunal or Courts for discharge or modification of the covenant. Both can be costly, especially as success with an application cannot be guaranteed. The age of the covenant and any change in the character of the neighbourhood since the covenant was imposed are factors that may be taken into consideration in an application. Bear in mind that indemnity insurance will almost certainly no longer be an option once the party benefiting from the covenant is aware of the breach or potential breach.

Again it is worth involving your solicitor at an early stage as the issues involved with restrictive covenants are often technical and complicated, so it is crucial to seek legal advice at an early stage.

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