Leasing vs. Sharing Office Space – What’s the Big Difference?
May 6, 2019
Many Small Businesses are Increasingly Looking to Co-work or Share Office Spaces
While commercial leases were once the gold standard, many small businesses are increasingly looking to co-work or share office spaces with other businesses rather than rent space exclusively for the business. Co-working and office-sharing may be cost-effective; however, the failure to appreciate the unique features and risks of co-working or office sharing can lead to legal headaches down the road.
There are various differences between co-working and office sharing, and the type of arrangement a business may choose to utilize may depend on the various needs of the business.
What Is Co–working?
Co-working typically involves a group of individuals who convene in an open-layout shared space to work independently. Companies who run co-working spaces, WeWork Companies, Inc. for example, often provide a multi-location network of shared office space. Individuals who co-work are usually looking to avoid the isolation and distractions that may be encountered when working from home or frequent travelers. Co-working is typically funded by monthly membership fees whereby the cost varies based on the level of services provided. For instance, low-cost memberships may only offer occasional access to office space, while members also have the option of paying more to occupy the same desk every day.
What is Office Sharing?
Office sharing customarily involves a business or a group of companies that have an excess amount of office space which they share with smaller companies at relatively lower-cost and shorter-term than a lease. The business or companies sharing their office typically provide a receptionist, high-speed Wi-Fi, a copy machine, office supplies, coffee service and other amenities that a traditional office setting would offer. The company benefitting from the use of the excess space would typically sign a license agreement setting forth the costs and fees for such additional amenities.
Is Office Sharing or Co–working for You?
For startups and other small businesses, office sharing or co-working provides the benefits of a fully-functional office at a fraction of the cost. Entrepreneurs can focus growing their businesses rather than waiting several hours for the cable guy to arrive, or remembering to order ink for the printer. In addition, many office-sharing spaces also offer common areas and organized opportunities for members to socialize and network.
Flexibility is also a big draw. The term of a traditional commercial lease often spans 3-5 years. Meanwhile, a shared office license can be as short as one or three months and the majority of office-sharing agreements are for a period of twelve months with opportunities to renew. For businesses that expect their office space needs to change significantly in the foreseeable future, a co-working arrangement often makes more sense.
Office Sharing Agreements:
Before entering into an agreement to co-work or share an office space, it is important to take the following considerations into account:
(1) License Agreements for Shared Office Space:
- Who is responsible for what? Much like a standard commercial lease agreement, it is essential that a license agreement for shared office space clearly define who is entitled to use what space, i.e. what space is exclusive to the licensee and what space is shared with other occupants? Similarly, the agreement should also expressly state how the cost of the shared space is allocated among occupants and whether the licensor or the licensee is responsible for any damage and/or repairs needed with respect to common areas.
- Legal protections in license agreements for shared office space: Leases are complex legal documents that govern both contractual and property rights. Licenses are essentially a creature of contract with no underlying real property interest. While licenses are often simpler and easier to negotiate than leases, license agreements can also be terminated more readily, often with just 30 days’ notice. Meanwhile, tenants subject to leases may benefit from the statutory and other legal protections of established landlord/tenant law. Given the lack of control over many aspects of a licensee’s office space, it also important for a licensee to ensure that it has sufficient liability insurance in place and a backup plan should the space no longer be available.
(2) Safeguarding Intellectual Property/Confidential Data in a Co–working Space: Co-working space offers far less privacy than a typical office space. For entities that have nondisclosure agreements with business partners and clients, it is important to consider whether the innate “openness” of co-working space will pose issues. Co-working spaces that aim to foster collaboration, such as incubators, often contain provisions in their membership agreements that prohibit businesses from requiring other businesses sharing the space to sign non-disclosure agreements.
- Technology/data security: Sharing office space or Coworking generally means sharing technology infrastructure. In addition to making sure that the services and hardware are sufficient for the needs of a business, it is also important to verify that sharing office space will not significantly increase risks of a data breach. To provide added security, many companies that share office space rely on a virtual private network (VPN) internet connection.
Whether you are pursuing a commercial lease, co-working license or membership agreement, it is imperative to protect your legal rights. Prior to executing any form of agreement, we encourage all businesses to consult with an experienced commercial real estate attorney.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Stephanie Edelstein, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.