Co-working space or office lease? The bottom line isn't just money

  • SCOTT HARGADON

    SCOTT HARGADON

  • HOLLY SHUMAN

    HOLLY SHUMAN

 
Updated 9/11/2019 8:57 AM

The popularity of co-working arrangements over traditional office leases continues to grow, and it's easy to see why. They're more flexible, require much less planning, and offer substantial cost savings on both space and services. No wonder today's millennial workforce loves them. What's not to like?

Plenty, argue attorneys Scott Hargadon and Holly Eubanks, specialists in leasing law at Meltzer, Purtill & Stelle, a leading Chicago area commercial real estate law firm. Beneath the seemingly obvious benefits, the two point out, lurks a quagmire of potentially costly risks, due largely to a lack of well-defined rights and regulations.

                                                                                                                                                                                                                       
 

Start with how the parties to the agreement are defined. Where a traditional lease exists between landlord and tenant, each with clearly outlined rights and responsibilities, a co-working agreement is more like a license between a CWE (co-working entity) and a "member" or "guest" whose only right is to occupy the space.

Usually, the agreement is month-to-month and can be terminated at any time for no reason. Moreover, terms can be changed, fees for services increased, and even the space itself can be altered, often without warning. And while the "guest" may terminate the agreement if such changes are not acceptable, that "right" is offset by day-to-day uncertainty and the costly prospect of having to move on very short notice.

These potential problems are compounded by the fact that, more often than not, CWEs do not own the properties they manage. In fact, they are tenants themselves, subject to the same terms and conditions as any leaseholder.

This raises all kinds of questions about issues ranging from building utilities like HVAC and janitorial services to liability for personal injuries and property damage that may occur on the premises. Terms covering such contingencies are usually skewed in favor of the CWE -- when terms exist at all.

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Privacy -- or a lack thereof -- is yet another potential problem area. Most co-working agreements give the CWE the right to access their guests' space at all times without notice. Some CWEs reserve the right to monitor members' network usage, including shared printer data which may include digital copies of printed documents.

All of which is not to say that co-working agreements don't have their place. In fact, they may be ideal for small companies who relish the freedom and flexibility as well as the lower cost. Even larger corporations who require supplemental office space can realize significant benefits by entering into co-working arrangements, provided they are effectively negotiated. And that is the real bottom line on co-working space, according to Hargadon and Eubanks.

Both have negotiated dozens of co-working agreements on behalf of Chicago area clients, and have come to understand firsthand the pros and cons of this increasingly popular office space option. To help companies considering a move to co-working space make more informed decisions, they put together an advisory white paper, "Ten Things to Consider in Co-Working Agreements," which this article summarizes and can be found in full posted on the MPS Law website. It's a great read for anyone who wants to learn more about co-working spaces -- the good, the bad, and the ugly.

• Meltzer, Purtill & Stelle is a Chicago-based business-to-business law firm specializing in commercial real estate. For access to the article cited above, visit https://www.mpslaw.com/news.

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