Trends in Commercial Leasing Co-Working and Office Sharing Arrangements Pam Swidler, Esq., Associate General Counsel for Real Estate 4.28.17
Office Leases for Shared or Co-Working Spaces Here s what we ll talk about: How are Office Leases for Co-Working Spaces Different: Mostly, they re not. Every presentation seen today is relevant for leases for co-working space. The interesting aspects are those issues that are looked at differently in light of the use of the space. Agreements between the office space provider and individual members can take different forms. National and international market experience.
Co-Working Fun Facts As of Q2 2016:* 767% growth in occupancy of co-working spaces in New York City from 2009-2016 Over 180 co-working locations in New York City As of Q4 2015, over 7,800 co-working locations worldwide** Read about the co-working experience: Innovation Spaces: The New Design of Work The Brookings Institute (http://brook.gs/2o0ba7n) Why People Thrive in Co-Working Spaces Harvard Business Review (https://hbr.org/2015/05/why-people-thrive-in-coworking-spaces) The Rise of Co-Working: A Growing Workplace Movement (https://www.knoll.com/document/1353024612056/wp_knoll_coworking.pdf) The Guy Behind the 4-hour workweek thinks you should work for 4 hours at WeWork (http://on.mash.to/2pzcjlh) Newmark Grubb Knight and Frank Jun 2016 NYC New Trends: http://www.ngkf.com/uploads/filemanager/white%20papers/nyc- NewTrends-CoWorking-June2016.pdfReport ** Global Coworking Unconference Conference/Emergent Research (2015) Fifth global coworking survey, November, available at: deskmag.com. http://officeslicecoworking.com/wp-content/uploads/2015/06/ GCUC-2015-Coworking-by-the-Numbers. compressed- 1.pdf, Accessed 11 November 2015.
What s Important in a Shared Space Lease: Use Provisions Of course, its vital that the use clause contemplate the use as a shared space. General office use is not sufficient. Need the right to operate a coworking space with together with ancillary uses to allow for any changes or growth in the business over time. Landlord acknowledgement of type of use as workplaces evolve the uses will require more flexibility Consider that individual members may use space for a variety of types of businesses. Ability to bring in bikes and pets
What s Important in a Shared Space Lease: Operational Requirements Given that shared office space is similar to a hospitality offering, ensuring that the Landlord and the Lease allow for the ability to operate up to expected service levels is key. Cannot leave operational teams to figure it out after the lease is signed. Lobby presence and flexible access systems to keep buildings safe while allowing for monthly turnover. Above standard HVAC requirements Passenger and freight elevator access Parking Arranging for office users rights to contract for parking Planning for known major renovations and construction which affect office users Flexible alterations rights moving around partitions, cosmetic upgrades, etc.
What s Important in a Shared Space Lease: Services and Interruptions Ability to operate and receive services at all times in every square foot of the space is key to the business. If office users are having a negative experience in the space, brand and revenue are damaged. Upfront due diligence is key a missed defect that causes interruption to members could be costly. Services HVAC, electricity, water, elevators, etc. Strong rent abatement rights for material service interruptions Strong Self-Help Rights Member experience is paramount
What s Important in a Shared Space Lease: Competitors and Exclusives Exclusives for co-working providers similar to the concept of exclusives for retail tenants. Definition of Competitors Flexible work space vs. standard desk sharing arrangements Landlord cannot compete by setting up flexible office space in the building Geographical scope of exclusive will depend on location and type of Landlord Remedies for breach of exclusive liquidated damages preferable given that actual damages may be difficult to quantify
What s Important in a Shared Space Lease: Assignment and Subletting Most considerations are the same as a standard office tenant except for the ability to license or sublease to individual office users. Ability to lease or license to individual users without Landlord s prior consent Individual agreements (discussed later) constantly evolving and changes are made for certain users. Difference between standard subletting and agreements with individual users access to shared office space s other services Other Permitted Transfers similar to typical office leases (change in control, merger, sale of all or substantially all of the assets, etc.)
Individual Office User Agreements Typically a license where member has no property rights Cannot go back to Landlord for consent for any changes to the agreements Vary by country and jurisdiction depending on language and local requirements Provide office user with space and various services Office user provides standard indemnities and waiver in favor of tenant, and in some cases the Landlord
National and International Market Experience Co-Working and office sharing has been global for a long time, and the recent high growth rate in co-working is happening on a national and international level. Smaller domestic markets are less familiar with the new co-working concepts (like WeWork, as opposed to traditional executive suites like Regus) and require more explanation on how the business operates Certain international jurisdiction requirements of individual businesses to register Condominium regimes outside of the U.S. Issues surrounding VAT, sales tax and other tax issues
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