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Wins & Insights

Tenant Leasing Illustrated April 2021 Bounding and Astounding Co-Working Spaces

I suffer under the double whammy of not only being a NY Mets fan, but also being a NY Knicks fan. The Mets are at least charming in their futility but the Knicks… James Dolan. Need I say more? This year though, things are looking up. The Knicks have a young, exciting team and in Julius Randle an All-Star player. But for me the best thing about watching a Knicks game has been and always will be Walt “Clyde” Frazier. No, not that he is a World Champion, All-Star Game MVP and voted one of the 50 greatest players of all time. And not even because of his wacky taste in clothing (the “Clyde” moniker comes from wearing a hat like Warren Beatty in the movie Bonnie and Clyde). It is that Clyde does the broadcast commentary on Knicks games like nobody else; a walking, talking, rhyming SAT vocabulary prep course. Hustling players are ubiquitous. Rookies are precocious neophytes. When hot, a player is percolating. He describes one player as having “feline quickness and canine ferocity” and another as “erratic, charismatic, dramatic, acrobatic.” Part of his appeal is that Clyde is honest with viewers and speaks his mind about under-performing players, sometimes accusing even his beloved Knicks of playing “matador defense.” But Clyde; what’s with the rhyming? He has the team “bounding and astounding”, “swishing and dishing” or “slicing and dicing”. If only we could get Clyde to provide the commentary on some Mintz & Gold commercial leasing. Hey, no snickering out there. I have been known to “draft and craft”, certainly to “call and stall” and often my negotiations involve “beguiling and bedeviling”. What really may start percolating soon will be tenants thriving and surviving back in their offices and one option for some tenants may be the flexibility afforded by co-working spaces, either as “one off” spaces or at multiple locations under master service agreements. Although co-working companies were hit hard by the COVID recession, the ones that survive may do quite well, not just in downtown urban areas but also in suburban areas as more workers look to avoid commutes but need a quiet working space outside their homes. Many co-working agreements are structured more as licenses or membership agreements than leases, have tenant unfriendly terms and have historically been difficult to negotiate. That may change in the post-COVID world but there are still a number of traps for the unwary. Make sure you are posting and toasting when you enter into a co-working space agreement with the following fourteen suggestions.

  • Leasing and policing. Although your short-term co-working agreement may indicate that it is in the nature of an agreement for hotel accommodations, you should raise the same issues as with any lease. For example, the “retainer” is the same as a security deposit and you need the same protections. As with any short-term lease, limit your liability for matters that could survive your term (e.g., to make structural repairs). Also note that terms and conditions are often incorporated from the landlord’s website so you must be careful to review and treat these as part of your co-working agreement.
  • Giveth and he taketh (services). A big part of a co-working arrangement is the services provided, such as discounts from vendors, access to other locations, payroll services and more sundry items such as use of equipment, receptionists, mailroom and conference rooms and internet access. Clearly indicate which services are included in your rental and which are extras. Some agreements allow for reduction in services but this should only happen upon prior written notice and without material or adverse effects. Also, delete any wishy-washy language such as landlord “shall endeavor to” or “use commercially reasonable efforts to” provide such bargained for services.
  • Slicing and dicing. Your space may be out in an open “bullpen” area, or you may have designated and separately demised office space in which case it should be clear that such space is for your exclusive use with limited landlord access.
  • A dubious call. Many co-working agreements provide for automatic renewal unless one of the parties provides notice to the other. This presumption should be reversed so that you do not inadvertently end up with more term than you wish. It may also be possible to terminate your co-working agreement early upon notice but in that case try to limit the termination payment to some fee but not the entire remaining rental.
  • Huffing and stuffing. In addition to assignment and subletting restrictions, many co-working agreements limit occupancy to your specific employees at the site with an exception for a limited number of “guests”. Guest limitations are not seen in typical leases so you need to make sure that these limitations work for your business and allow for extended stays (e.g., to accommodate out of town employees, audit teams, client visits, etc.)
  • Shaking and baking. Indicate any alterations that you intend to make (or have your landlord make) and limit any removal and restoration obligations at the end of the term to alterations that are not reasonably suitable for general office occupancy.
  • Cruising and bruising. Many co-working agreements allow the landlord to relocate the tenant to other space in the building (or even other co-working locations run by the landlord). If this provision cannot be removed, try to give yourself adequate notice, reimbursement of moving costs and specifics regarding the new location.
  • Used and abused. Do not allow your landlord to use your company name and/or logo to identify you as a “member company” in the landlord’s website and marketing materials or to require joint marketing or promotional opportunities without your approval.
  • Swiss cheese defense. In order to utilize internal networks and other functionalities, your landlord may ask to install software onto your equipment. All of these amenities pose confidentiality (and potentially ethical) issues that must be reviewed with your IT and security personnel.
  • Wheeling and dealing. Co-working landlords often try to limit their liability to the aggregate membership fees paid over the past year. It is common to mutually exclude liability for consequential or punitive damages (including loss of profits), but other broad liability limitations should be avoided and if agreed upon should exclude certain liabilities (e.g., those covered by insurance or under indemnities or those involving fraud or willful misconduct).
  • Sharing and caring. Many co-working companies collect your personal data so carefully review the website privacy policy, require a confidentiality agreement and prohibit the issuance of any publicity without your consent.
  • Hacking and whacking. Unlike a typical lease, it is important that you and your neighbors play nice in the co-working sandbox so your co-working agreement will likely limit activities that could disturb other occupants (e.g., loud noise or vibration, trash storage). You should examine these limitations to make sure that they are compatible with your business and are uniformly enforced.
  • Out-muscling and out-hustling. Your co-working landlord may control its space through a lease from a third-party owner of the building in which case your co-working agreement will be subordinate to the superior lease and you will need to attorn to and recognize a new landlord if the superior lease is terminated. The difference with a typical lease here is that your attornment obligation ideally should be subject to the new landlord providing the same bargained for services.
  • Persistence personified. Some co-working agreements provide that you may not solicit or offer employment to the landlord’s staff employed at the site, often with a monetary penalty if breached. Try to make these provisions mutual and make it clear that nothing prevents either party from employing someone who responds in good faith to a public advertisement or headhunter.

“Intoxicating move, leaving and inebriating with that stuff.” That’s how I feel listening to Clyde, but you can be orchestrating and devastating by following the suggestions above, allowing you to be spinning and winning yourself to a co-working agreement that truly percolates.