The Bermuda commercial rental market has a few surprises for the unwary.

Companies are usually not permitted to take a lease of premises unless for the purpose of carrying out business and the lease should not usually be for a period in excess of 50 years. Commercial leases are commonly for a period of five years.

Moving in before a lease is signed is a common mistake made by commercial tenants. Once a tenant moves in and starts business, the tenant's bargaining power with the landlord is significantly reduced. This is because moving out may have a significant direct cost, and an even greater economic loss. Any resulting lease is likely to favour the landlord.

Premises are often fitted out by either the landlord or the tenant, but in either case there should be written agreement as to what the fit-out works are to consist of and what level of quality is required.

There can be long delays before materials are delivered from abroad, and exit customs. Import duties can be significant and so an incoming tenant often buys furniture and fittings from an outgoing tenant.

If a tenant fits out the premises, the tenant may receive a rent-free period of up to three months. However the rent-free period is unlikely to be free of service charges.

There is no automatic right for a tenant to renew at the end of the lease period and so a tenant ought to require that a right to renew is written into the lease. Both the landlord and the tenant require certainty and so renewal terms should include details of the new lease period and how the rent is to be calculated. The new rent is usually based on a CPI increase, or the greater of open market rent and the rent payable under the old lease.

If a tenant has made a significant investment in premises, there is all the more reason to require that renewal rights are written into the lease.

Tenants usually try to obtain certainty on all outgoings and so for example a cap on service charges.

For landlords a cap on service charges can be risky bearing in mind some charges are beyond the landlord's control. For example, a landlord has no say in increases for electricity supplies for lights and elevators to the common parts of the building.

An incoming tenant often attempts to negotiate changes to lease service charge provisions. However if a building is multi-let, any change to service charge provisions can have an adverse effect on both the landlord and existing tenants. Landlords should resist changes to service charge provisions in multi-let buildings and find alternative ways of compensating a new tenant.

Landlords usually recover insurance premiums from tenants through the service charge. Although premiums can rise, at least landlords are able to choose from one of several insurers and may even be able to lower costs (unlike for, say, electricity) by shopping around.

Ideally, a tenant would like to have an option to break a lease at regular intervals. However a right to break is less appealing to a landlord. The compromises are that instead of having a right to break early, there is a right for a tenant to transfer the lease to a third party and to sublet to a third party. However such rights to transfer or underlet, in a slow market, may not be much comfort to a tenant seeking to leave early.

Even if a non-local company tenant has a right to sublet stated in a lease, a government licence is required before the sublet begins.

Licences are granted on the basis that a non-local company should not be making a profit from subletting, instead only costs should be recovered on surplus space.

There is no such thing as a "standard lease" although most multi-let buildings have a similar form of lease for all tenants. Even if a building has a standard form of lease there are occasions when such a form is unsuitable for the particular premises, or the particular tenant.

Landlords and tenants are cautioned to seek a Bermuda attorney's advice prior to signing a lease in Bermuda.

Attorney Neil Molyneux is a member of the Property Practice Group of Appleby. A copy of this column is available on at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.