In the not-too-distant past, corner offices were sought after as they represented power and prestige. Only the most senior partners or high-ranking executives were able to secure such spaces. In the age of startups and new technologies, “working from home” has become normalized, and flexible and collaborative atmospheres have started to shape most work environments. More and more businesses are moving away from traditional office spaces, and corner offices do not have the cachet they once did. For these reasons, co-sharing arrangements have become increasingly popular and users, licensors and their respective counsel must be mindful of their legal implications.
Co-sharing arrangements usually take the form of a large space within an office building that is shared by multiple users from different organizations and industries. The space is divided into smaller offices, cubicles, and additional spaces (such as a kitchens and boardrooms), which are generally fully furnished and operational.
Rather than a lease, co-sharing arrangements are governed by license agreements. The license grants the user of the space (the “licensee”) a contractual right to enter and use the space but does not confer an interest in the real property. Accordingly, users of shared spaces do not have the same protections as commercial tenants (i.e., the Commercial Tenancies Act), and licensors of shared spaces remain tenants of the existing building and therefore must still adhere to the terms of their current leases.
Considerations for Licensees (Users) and their Counsel
Licenses are usually short-term and often revocable and/or terminable upon 30 days’ notice or less. This is in stark contrast to a lease which can only be terminated pursuant to its termination and default provisions. In negotiating a license agreement, counsel must be sure that their clients have a thorough understanding of how and when a licensor may terminate the license agreement. Prior to entering into a license agreement, users should consider their options in the event the license agreement is unilaterally terminated by the licensor.
In a co-sharing arrangement, utilities are shared by all users, and individual users have little to no control over the building management or the communication systems used. Accordingly, should a user have heightened or particular needs with respect to electricity or other systems, counsel would be prudent to negotiate these terms outright. The license agreement should expressly identify which utilities and services the licensee will receive as part of its license fee.
Considerations for Licensors (Tenants) and their Counsel
If a tenant wishes to become a licensor, that is, offer desk-sharing or is in the business of providing shared space arrangements, there are a few key provisions which must be negotiated prior to entering into a lease with a landlord.
The failure to include a provision explicitly allowing the tenant to use the premises for space sharing can result in a shared space arrangement falling under the assignment and subletting provisions of the lease which will likely require the landlord’s consent. Accordingly, the tenant should request a provision specifically allowing for co-sharing arrangements at the outset of the lease negotiation, which would not require future consent, nor fall under the assignment and subletting provisions of the lease.
Another key provision of any commercial lease is “permitted use”. The more narrowly defined this section, the more opportunity for a tenant to default. Accordingly, the “permitted use” provision of the lease must be negotiated as broadly as possible to allow for users of various organizations and industries to make use of the space.
While co-sharing arrangements are increasing in popularity, it is clear that a number of legal issues must be carefully considered during the negotiation stage of both license agreements and leases. Licensors and licensees must be mindful of their business plans and needs prior to entering into either form of agreement.
What are your concerns about negotiating and implementing co-sharing license agreements? We welcome your feedback and questions regarding this post. Please post your comments on our LinkedIn page at: Dickinson Wright Canada on Twitter at: @DWrightCanada or on our personal LinkedIn Pages at: https://www.linkedin.com/in/melissa-tayar-150302127/ and https://www.linkedin.com/in/paul-muchnik-aa957b5/