Kimberley A. Farmer focuses her practice on corporate law, business law, and commercial real estate transactions. Her work includes business formation and development; mergers and acquisitions; and loan and refinancing transactions. Kimberley...Read More by Author
The Fate of Coworking Spaces in the Wake of COVID-19
Prior to COVID-19, coworking was a growing trend as businesses evolved to include remote work, independent contractors and traveling employees. The coronavirus shutdowns resulted in an initial hit to these communal spaces. However, as businesses reopen and employers search for ways to provide socially distant working environments and remote options for employees, coworking companies are likely to recover, if not thrive. These spaces offer a flexible alternative for companies that need to downsize or “de-densify” their offices in a cost effective and timely manner. They also provide services that continue to be vital for the success of small businesses and sole proprietors. In addition to the benefits and potential solutions that coworking spaces can offer, this article provides a general overview of office sharing arrangements, as well as key provisions to include in coworking agreements.
Spaces, Services and Coronavirus Adjustments
Typically, a coworking arrangement involves a large space within a building that can be set up with tables or desks or separated into cubicles, conference rooms, offices, and common areas that are shared by multiple tenants (usually referred to as “members”). Members are provided with a certain amount of work space within the larger shared space. The space is usually fully furnished and includes internet capacity and often other equipment (e.g., printers, etc.). Members may request individual “hot desks”, private offices, conference rooms, or a combination thereof. Different occupancy fees are charged depending on the member’s requirements. Most facilities involve monthly membership fees, but many also have “daily pass” rates. In the wake of the coronavirus, many coworking companies are reworking their spaces to allow for social distancing. This includes eliminating shared desks, or implementing strict sanitizing procedures between uses. Companies are also including more private areas and buffer zones to separate members.
One of the key differences between space sharing and leasing is that coworking places a focus on services and amenities rather than just the space being rented. Standard items such as internet access, janitorial services, free coffee and snacks are usually included. Other amenities can include receptionist and copying services. Many companies also offer access to advisors or consultants as well as social and networking events. These services can be especially helpful to entrepreneurs and new companies looking to expand and build a network or smaller businesses and sole proprietors who require back office support. Also, many coworking spaces are focused on specific industries such as technology; real estate; or design. Industry focused spaces often provide services, classes and events specifically tailored to topics and requirements within its members’ fields. Many of these services and events are now being provided online and via video conferencing platforms. Service costs are added onto the occupancy fee or built into different levels of membership fees.
Global versus Local Operators and Landlords
There are various types of coworking companies (or “operators”) and the type of company a member uses will often depend on the nature of the member’s business. Larger third party operators such as WeWork or Regus have traditionally dominated the coworking market. Many of these operators have a global network of locations, which is beneficial for companies who want to have a presence in different cities or wish to provide space for traveling employees or remote workers. These memberships could be for a limited or extended term (e.g., up to 12 to 18 months). The fees of a company like WeWork are usually higher than those charged by smaller, local coworking companies and these larger operators often deal with corporate clients. In contrast, many local workshare spaces cater to independent workers or individual entrepreneurs. An advantage to using local companies is that they often have services or events focused on the local business community and they can help to contribute to local economies with training and employment opportunities. Finally, traditional commercial landlords have not historically offered space sharing arrangements. Usually companies like WeWork will enter into long-term leases with landlords and will then contract with members to share that space. However, as more tenants start to move away from leasing large offices for extended time frames, it is likely that commercial landlords will begin to offer coworking options instead of, or in addition to, traditional leases. A final branch of coworking involves websites and apps, such as WorkForm, that locate local shared work space. These services act as a facilitator between the coworking company and the member, much like an Airbnb for office space.
Benefits of Coworking Spaces in a COVID-19 World
Most office workers are still working from home and a large amount may even continue to do so post-COVID-19. Also, many companies are requiring that employees only come into the office a couple times per week or month. This new working reality may lead many companies to eliminate much of their office space. Coworking spaces allow companies to decentralize offices, and provide options for employees to access conference rooms and other services, or simply to get out of the house, but to do so closer to home. In addition, small businesses and sole proprietors will continue to require meeting rooms, business addresses, receptionist services and the other amenities that these spaces offer.
In addition to allowing for various remote locations, companies may consider moving from existing office spaces into coworking spaces. It may be simpler and more cost effective to create socially distant floor plans in a coworking space then to retrofit existing office setups. In these uncertain times, both startups and large national companies can benefit from the flexibility to increase or decrease their space and the length of lease terms, depending upon the business’ success and evolving needs. In addition, coworking reduces costs by eliminating large security deposits, personal guaranties and insurance coverage that landlords frequently require, as well as the utility expenses and CAM fees often involved with leasing.
Key Provisions in Coworking Agreements
Although coworking agreements are simpler and require less time and money than leases, there are certain aspects of these documents that must be considered and various provisions that should still be included to protect both parties.
Coworking agreements only provide the member with a license to use the space (and possibly any equipment included in the membership). Unlike in a lease, the member is not given any real property interest in the premises nor does it/he/she usually have exclusive rights to the space. Although the rights of the member are limited under a space sharing agreement, this is the tradeoff for a flexible arrangement that can be easily terminated or adjusted by both the member and operator. The parties will want to include adequate termination rights in the agreement, allowing for termination with a certain amount of notice (e.g., 30 days for a monthly membership). This not only allows flexibility for the member, but also allows the operator to cut ties with difficult members or to free up the space in the event that the landlord wishes to replace the coworking arrangement with a long-term lease.
There are certain provisions that are not normally included in a lease, but that are often essential in a coworking arrangement, due to the communal nature of the space. Operators should be sure to protect not only their rights, but the rights of other members to use the premises. Any behavior or actions that would disrupt the use and enjoyment of the space by other members should be prohibited, including defamatory remarks towards other members or solicitation of other members or their clients. This could also include violation of any COVID-19 related rules. A space sharing agreement should limit the use of the space and prohibit things like hacking, data theft, and unauthorized access to computer systems. Also, privacy and confidentiality issues must be addressed, since members could have access and exposure to the confidential information and intellectual property of other members. The agreement should also include clauses indemnifying and holding the operator harmless for any actions of the member, and possibly a requirement or recommendation that the member maintain its own insurance covering its personal property. In addition, many establishments are now including COVID-19 related waivers, providing that the member will use the business’ facilities at his/her own risk and that the member will hold the business harmless in the event that a member becomes infected. It would be beneficial for coworking companies to include similar disclaimer language in their agreements or to require a separate waiver from members.
The Future of Coworking
It may seem that “shared” working spaces are the antithesis of COVID-19 restrictions and safety requirements. However, with some adjustments, these arrangements may prove to be viable solutions for companies, whose needs have shifted due to employee location and scheduling changes resulting from the coronavirus. In the long run, as companies use less space and employees continue to work remotely, the office sharing concept will likely thrive. In addition, entrepreneurs, small businesses and the self-employed will continue to benefit from these spaces and services, whether provided in person or virtually. COVID-19 has changed the working environment for the foreseeable future and coworking is adapting to meet the evolving needs of companies and their employees in this strange new working world.
The information contained in this publication should not be construed as legal or medical advice, is not a substitute for legal counsel or medical consultation, and should not be relied on as such.