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The Benefits and Pit-falls of Shared Work-Spaces

Shared work-spaces are designed to accommodate flexible, agile working and are gradually becoming more widespread in the commercial property market. The appeal is obvious; affordable, shared, serviced work-hubs where the Tenant can rent a space, nurture their business and share ideas with like-minded cohabites from a diverse range of backgrounds. The idea appears both logical and genius! But what are the advantages and disadvantages of this model for both the Landlord and Tenant?

For the purposes this article, we will consider the situation from the Landlord’s perspective. The appeal of shared work space for the Landlord is obvious; if they have surplus office room, desk spaces etc. they can earn extra income from renting out this space, but the model is not without its pit-falls and disadvantages.

The Landlord should, firstly, consider their own lease Most standard, commercial leases contain provisions restricting the Landlord’s ability to share their premises or to sublet all or part of them, although a common exception is that a Tenant can share their premises with a group company i.e. a company which is for the time being a subsidiary or holding company or another subsidiary of the holding company. The reasons for restricting underletting or sharing are obvious; a Head Landlord wants to be in control of who is in occupation of the premises and would always want to avoid “sitting” tenants who occupy only part of the premises and as a result, make them potentially unlettable when the main tenant vacates. For all parties to be protected, the Landlord should firstly approach the Head Landlord for consent. Of course, the downside is that they may refuse.

The appeal of shared work space for the Landlord is obvious; if they have surplus office room, desk spaces etc. they can earn extra income from renting out this space, but the model is not without its pit-falls and disadvantages.

If, and when, consent is granted the next decision will be how the Landlord and Tenant decide to document the arrangement. There are several options which could be considered; a tenancy at will, a licence or a short-term lease of not more than six months. The first two options have their disadvantages. In relation to the tenancy at will, there must be no suggestion that the tenant can stay for a minimum, or maximum, period and the document must unequivocally state that the Landlord can ask the Tenant to vacate at any time. Obviously, this might be difficult option to sell to any Tenant as it leaves them in a vulnerable position. The second option, a licence, could also be viewed as undesirable as they can often be inadvertently being construed as leases and, therefore, result in a Tenant having security of tenure under the 1954 Landlord & Tenant Act (which allows for a Tenant to hold over after the determination of their lease team). In these situations, the Landlord can only remove the Tenant under highly restricted circumstances.

The safest method to use to document the new arrangement is generally considered to be a lease of not more than six months as this will not attract security of tenure unless it contains a provision for extending the term beyond that six-month period. A second term bringing the total period of occupation to a year would, however, attract security of tenure. To avoid this, the Landlord and Tenant can agree to exclude these provisions of the Act applying to any tenancy. It is a straightforward procedure involving the Landlord serving a notice on the Tenant and the Tenant then providing a declaration (or statutory declaration where the tenancy is to be entered into in less than 14 days) declaring that they understand that they are giving up the rights which would otherwise be conferred by the Act. This option provides security to the Tenant in that they know the duration of their occupation in their shared work-space and the Landlord is not tied into an onerous term with their new agile-workers.

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Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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