Cubicles are out and coworking spaces are in. Companies have begun to shift away from the traditional in-office work culture to more flexible work environments. It has been normalized to work where multiple companies host their employees, creating an overall collaborative atmosphere. This shift has saved companies money and resources, especially because they sign a license rather than a lease agreement.
To understand the relevance of coworking spaces requiring licensing agreements instead of leases, these terms must first be properly clarified.
A lease, in simple terms, refers to an agreement that creates a relationship between a landlord and tenant. In more detail, a lease grants the tenant exclusive possession of property against all others, including the owner, for a set period of time. After that term, the property reverts back to the owner without transferring any title. If permissible, a tenant can transfer their entire right to exclusive possession and use of the property, with the obligations under the lease, to another party. This transfer is referred to as an assignment. Another course of action is a sublease, which is when a tenant transfers only a portion of their right to exclusive possession and use of the property, but still remains obligated under the lease. In this scenario, the tenant will be known as the sublandlord or sublessor, with the new tenant being a subtenant or sublessee. However, the landlord’s consent is usually required for either an assignment or a sublease.
A license refers to the privilege an individual is granted to own or do something on the property with the permission of the owner. In general, a license gives an entity or individual the authority to use the property for a specific purpose. Most notably, a license does not convey or transfer any interest in real property, unlike a lease. It instead simply makes an act lawful that would otherwise be counted as a trespass.
A key difference between the two is that while a lease grants a tenant exclusive possession of the property, even against the landowner, a license does not. Licenses are not transferable and are generally revocable by the licensor at any time. In contrast, leases are typically irrevocable unless otherwise stated.
The use of a lease or a license can depend on the unique circumstances of the given arrangement. Affecting factors include the intended use of the property, the duration of the use, and whether this use should be exclusive or transferable. Overall, while leases and licenses may share a similar purpose, their details display critical differences.
Traditional leases have been popular due to their requirement of a fixed term, providing a guaranteed rental income to the landlord for a set period. In return, entities are given reassurance that they can continue to work in the same location for that term. Companies are better able to plan ahead, without having to worry about changing locations. Thus, leases provide stability for both the landlord and the tenants.
However, coworking spaces are most celebrated for their flexibility. Most of these spaces will have a license agreement with their members. This agreement will determine the terms of the relationship and the rules of the coworking space. Although this license may not grant exclusive possession of the property space, it allows entities the opportunity to use the shared space and utilize the facilities, without having to commit to a long-term lease. Further, these agreements typically offer members packages tailored to individual needs, such as day passes or monthly contracts, unlike traditional leases. This makes coworking spaces ideal for those seeking flexible arrangements.
In coworking spaces, the operator assumes multiple responsibilities, which simplifies the members’ legal exposure. The operator tends to act as the landlord, facility manager, and compliance officer, which removes these burdens from the members. Members don’t need to worry about negotiating zoning issues, having fire code certifications, or infrastructure upgrades. The coworking space provider is responsible for ensuring the building meets standards and covering these costs.
When choosing a coworking agreement over a traditional lease, members also avoid complex clauses such as early termination, renewal penalties, and sublease restrictions. Coworking agreements are often simpler, falling under consumer contract law, which reduces negotiation time and legal fees, particularly for entities without dedicated legal departments.
Organizing a new office space can be overly time-consuming and costly. The usual costs and time it takes to arrange additional furniture, utilities, and hidden fees are often linked to traditional leases. In contrast, coworking spaces limit these costly obligations and provide members with an all-inclusive service and costs within a license agreement. Those who use coworking spaces are only required to pay for the space itself, as the operator is responsible for maintaining these amenities, limiting concerns for the members.
However, coworking spaces may limit individual growth. While businesses that are typically starting out or smaller can adjust their workplace requirements at coworking venues, individuals usually lack this same opportunity. Those who commit to these non-dedicated workspaces will most likely be continuing this process indefinitely, unless given the opportunity to upgrade to a private office space.
Furthermore, dedication towards using these coworking locations as a permanent solution could lead to costly expenses. Although hidden costs are avoided when evading a regular office lease, coworking spaces can be more expensive in the long term. Individuals who use these spaces regularly may find them to be quite expensive, especially if they are only using day passes. Therefore, monthly subscriptions tend to be more cost-effective. However, this alternative also reveals higher-tier pricing that can add up over time. Thus, coworking spaces may not be the most financially sustainable in the long run.
A coworking space also does not guarantee ultimate privacy. Most of these spaces tend to have an open environment to promote collaboration and community. Consequently, dealing with clients with sensitive information or pitching to new ones may be harder. Although there are private offices or team suites usually available to help with this issue.
Yet, exceptions exist proving that not all coworking agreements fall under a license. Sometimes, enterprise coworking agreements are instead designated as leases under accounting standards. This situation is more likely to occur if the company guarantees specific desks, private suites, or fixed multi-year terms. Another example would be if a company has had full control over a designated area within the shared office space. Especially if this exclusiveness has gone on for years, accounting standards might define and treat this arrangement like a lease. Thus, it is critical to always review the license agreements with an accountant or legal advisor, especially when accurate financial statements are important for investors or regulators.
The most important part to analyze in a membership agreement is the membership fees or rent required for the coworking space. This payment may include a base rate for a designated workspace and additional charges for amenities, meeting rooms, and other services. Some facilities offered include printing and copying services, common areas, high-speed internet, and access to meeting rooms. Therefore, it is significant to thoroughly review the details of the payment agreement to understand what is included in the monthly or daily cost and to determine any additional charges.
While most coworking spaces will require a security deposit, it is beneficial to know when the deposit will be refunded. This down payment is often one or more months’ rent, protecting the organization from any unpaid fees. However, it is essential to understand the conditions of the agreement before making a deposit to determine if it will be returned before or upon the agreement's expiration.
Another key factor to consider is the specific contract period of the coworking space’s agreement. The detailed arrangement may range from a month-to-month plan or a longer-term lease. Therefore, it is recommended to reevaluate individual needs in relation to the given contract before committing. A member should also note if there are any lock-in periods that could limit their ability to end the agreement before the termination date. Considering the consequences of breaking the contract or any potential penalties is also a good idea, in case necessary.
Termination clauses are also included in the rental agreement and should be properly reviewed. It is crucial to be aware of the provisions that allow either the coworking provider or member to terminate the agreement, along with any related penalties or consequences. A notice period is also included, as the provider requires a certain amount of time to prepare for the termination. This provision explains how and when a member should disclose that they are looking to end the arrangement. Therefore, members knowing their rights and obligations listed in a coworking agreement is crucial in case the need for an early termination ever arises.
Rental escalation may occur over time, so it is recommended to be aware of any escalation clauses in a coworking space’s contract. These sections detail the specific circumstances and frequency under which the provider can raise the monthly fees. To better budget for using a coworking space, an individual should also consider any escalation terms to properly plan for any cost increases.
In the event of needing to sublease or assign the coworking space to another party, it is critical to review the rental agreement’s terms and conditions. The provider may have specific policies and procedures for these types of arrangements, so it is best to thoroughly read them to ensure compliance. It is also substantial to be aware of any added restrictions or fees before taking action.
Coworking spaces also often grant a number of meeting room credits or hours included in a member’s monthly fee. In order to host meetings in this space, it is recommended to understand the details of this policy. An individual should be aware of how the credits are calculated, if they roll over to the next month, and if there are any hosting limitations on the types of events allowed in the space.
Disagreements may come up during an individual’s term at a coworking space. Therefore, it is vital to note the agreement’s outline for resolving such issues. There should be a process put in place, such as a mediation or arbitration requirement, to help diffuse the situation. In case of an event of a disagreement, a member should be familiar with the procedures to properly address any potential issues.
Coworking spaces are usually tied to licenses rather than leases. One agreement isn’t inherently better than the other, as it solely depends on an entity’s individual needs. A coworking license agreement actually shares both similarities and differences with traditional lease agreements. While most of the differences exist in the details, a big distinction is that coworking locations are more flexible. These spaces offer flexible office agreements with a variety of amenities, typically tailored to those seeking short-term workspaces. Ultimately, before committing to a coworking license, an individual should closely review their legal rights and membership terms to ensure the arrangement aligns with their overarching goals.