Small businesses owners must consider many variables before selecting the ideal location. How much can I afford to pay in rent? How long should my lease term be? What happens if I must exit my lease early for some reason? How can I cost-effectively provide my employees with amenities and perks that foster a positive work environment? Co-working spaces are a recent innovation that has provided small business owners with an attractive solution – affordable and flexible arrangements, with the benefits of modern amenities, and proximity to other small businesses with whom to network and collaborate. The model has been very successful, and brands like WeWork and Convene have become household names.

COVID-19 has completely upended the co-working business model. Small business owners who have taken advantage of the opportunity presented by co-working spaces to save money, enjoy flexible lease terms and popular amenities like frequent happy hour gatherings, free beer and coffee are now faced with even more complicated questions. Are you still liable for rent even though you cannot legally occupy, or even gain access to, your co-working space because of new governmental restrictions on non-essential businesses? What if you operate an essential business, but the co-working “landlord” denies access because it considers you to be non-essential? Conversely, what if you have access to your office only because another company (or companies) in the space is considered essential? Moreover, when the governmental restrictions are lifted, can your business reasonably implement social distancing guidelines or other guidelines mandated by the city or state, given the smaller footprint necessitated by the co-working business model?

The main legal difference between co-working spaces and traditional commercial spaces is that co-working spaces generally do not utilize conventional lease agreements. Most use some variation of license agreements, membership arrangements and/or traditional leases to establish the legal relationship with their tenants. The type of agreement utilized can have significant ramifications on your rights and potential legal remedies. For example, a license does not legally create a landlord-tenant relationship, is usually revocable at will, and does not necessarily require summary eviction proceedings. So, if your co-working space is held under a license, you will have fewer legal protections if your landlord seeks to evict you. Similarly, membership agreements do not generally provide the same level of legal protection as traditional commercial leases, and can, in theory at least, be terminated more easily.

Moreover, New York is currently experiencing a significant economic contraction as a result of the COVID-19 lockdown. This is causing co-working spaces, who are typically locked into long term leases, to experience substantial financial distress. Some are predicting that many co-working spaces will go out of business as their business model, which requires the concentration of people in lower cost, shared open workspaces, becomes untenable. Indeed, many are closing locations. Others are remaining open to cater to essential businesses, and charging all of their tenants rent as a result. While legal remedies are available regardless of the nature of a co-working arrangement, as is noted above, the specific options available will vary depending on the type of agreement utilized by the co-working space.

If your company operates out of a co-working space, we highly recommend that you diligently examine your own agreement to determine your rights and obligations as a commercial tenant or landlord. By being proactive in your negotiations, you will increase the likelihood that you company can achieve a viable long-term solution.

RICHTER RESTREPO PLLC’s attorneys have ample experience representing both commercial tenants and landlords, including those occupying co-working spaces. Do not hesitate to contact us with any of your real estate needs. Be safe!

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Published: 05/20/2020