Landlords and tenants in Bermuda often have different and opposite concerns when they are negotiating a lease for office space. However, both parties want a lease with clear and unambiguous terms.

Traditionally, leases occur because tenants do not wish to spend their own capital, acquiring and managing freehold real estate. Additionally, non-Bermudian and local companies are often restricted from acquiring freeholds.

Landlords fulfil tenant demand by spending or borrowing capital to acquire freehold buildings and so require a reasonable return from rents. Reasonable tenants accept this reality and are free to invest their management and capital in their own businesses, rather than in freehold real estate.

Landlords want to be certain of continued returns over many years and so prefer long lease periods. Tenants want flexibility to end a lease as and when business demand requires; however, tenants also want the ability to stay at the end of the lease period.

The parties usually accommodate such conflicting demands with a tenant renewal right at the end of the lease period, but at a new rent. Such new rent is usually an increase, ascertained by a formula, based on the Bermuda consumer price index, or the open market rent, or a combination of the two.

A properly written lease states the annual rent, which may be broken down into a monthly amount. Landlords usually view rent as their return on capital.

However, a wise landlord will want to recover the running costs associated with the building in which the office premises are situated.

Such costs, known as service charges, can include insurance, maintenance of the building's exterior and internal common parts, security, air conditioning of offices and common parts, and cleaning of common parts.

Additionally, and controversially with tenants, a wise landlord will also want to recover the costs of replacing, redecorating and updating the building.

A wise tenant will view such additional costs as capital improvements, which should be paid for by the landlord and not included with the service charge. A tenant may seek a cap on the maximum amount payable as a service charge.

However, such a cap may result in the tenant occupying offices in a less well-maintained building, as a result of landlord cost cutting.

Buildings periodically require maintenance and repair, and that may require landlords to put up scaffolding and restrict access; tenants, however, need to run uninterrupted businesses. Compromise lease wording will attempt to accommodate those conflicting demands.

Landlords want vacant premises to be re-rented as soon as possible. Since attractive premises usually let faster and at a higher rent than unattractive premises, landlords require lease wording obliging tenants to keep premises in good repair and condition, and to redecorate.

Such obligations have to be organised, managed, may be costly and may serve to interrupt business. A common compromise is for landlords to accept office premises back subject to fair wear and tear.

There should not be much wear and tear to offices, particularly if they are not open to the general public and where the lease period is for fewer than five years.

Information on rental levels will often reach the public domain. Therefore, landlords will not want sub-let rental levels to fall below existing rents, for fear of depreciating future rents. Leases have traditionally prohibited sub-letting at less than existing rental levels.

Recently, tenants have recognised that in a falling market, it may be impossible to sub-let at current rents.

A wise tenant will want the ability to cut losses and rent at a lesser level, whereas a wise landlord may have to recognise tenant demand for flexibility on rental levels for sub-lets.

Attorneys are often asked to produce a standard lease fair to both parties. However, there is no such thing as a standard lease; every building has its quirks, and landlords and tenants each have varying requirements.

Bargaining power is supreme, but negotiation should produce a lease acceptable to both landlord and tenant.

Cultural differences can mean that Bermudian, American and European clients have differing expectations.

A lesser amount of space available in a country can assist landlords, such as in Bermuda, whereas more space available can assist tenants, as in much of the United States.

Each clause in a lease may have a cost implication for a landlord and a tenant. An attorney experienced in the area will be able to advise on the consequences of lease wording, so that a landlord or a tenant will know what to expect from a lease.

Attorney Neil Molyneux is a member of the Property Practice Group at Appleby. A copy of this column is available on the firm's website at www.appleby global.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.