Coworking vs a Traditional Office Lease

Most coworking agreements are licenses or memberships, even when they run for a year and name a specific office. That one word changes your position. A law firm explainer from Miles & Stockbridge describes a license as a privilege to use space in a specified way, with no interest in the land. A lease gives the tenant possession for the term, and a landlord generally cannot end it early without language in the lease that allows it.

Scarinci Hollenbeck makes the practical point: licenses are often simpler to negotiate but can be ended more readily, sometimes on 30 days’ notice, and a licensee may not have the protections that landlord-tenant law gives a tenant. It also advises licensees to carry adequate liability insurance and to keep a backup plan in case the space becomes unavailable.

The label is not always the last word. In a New York dispute summarized by Smith, Gambrell & Russell, a court treated an agreement called a license as a lease because the occupant had exclusive access to a specific unit around the clock and paid monthly rent for designated office space. The law differs by state, so ask your attorney how your agreement would be treated where the space sits.

Do not assume you have a tenant’s rights because you have a door that locks. Read what the agreement calls itself, then what it lets the operator do.

A coworking quote and a lease quote are priced in different units: per seat or per office per month against rent per rentable square foot per year. Neither one tells you what you will pay. Convert both to a total annual cost, then divide by the number of people who will actually use the space.

1. Coworking side: add seats or private offices, conference room overages, printing, extra access hours, phone or network add-ons and any setup or security fees. Note the increase at renewal, if the agreement states one.
2. Lease side: add base rent, operating expenses and taxes if the quote is net, utilities, cleaning, internet and any parking.
3. Lease side again: spread your one-time costs over the term. Include furniture, cabling, security, moving and any build-out above the landlord’s allowance. Subtract free rent.
4. Divide each total by the people who will use the space, then repeat the math at your low and high headcount for the next few years.
5. Add the exit cost. What would it cost to leave each option early, and what would it cost to restore the leased space at the end?

Here is the method with round numbers. This example is hypothetical, for illustration, and is not market data. A team of 12 pays $650 per seat per month in coworking, which is $93,600 a year. Add $6,000 for overages and the annual cost is $99,600, or $8,300 per person.

The same team considers 3,000 rentable square feet at $30 per square foot gross, which is $90,000 a year. Add $12,000 for internet, cleaning and other services, plus $36,000 of furniture and setup spread over a three-year term, which is $12,000 a year. The total is $114,000, or $9,500 per person.

Coworking wins at 12 people. Now grow the team to 16 and assume the leased space still fits them. Coworking becomes $124,800 for seats plus $6,000 of overages, or $130,800. The lease stays at $114,000. The crossover depends on your own growth, which is why the calculation needs to run at more than one headcount.

Cost comparisons tend to hide what you give up. In a lease, within the limits of the document, you decide the layout, the access rules and what visitors see. In coworking, the operator decides.

• Confidentiality. Scarinci Hollenbeck notes that coworking offers much less privacy, which can conflict with nondisclosure obligations, and that some collaborative spaces bar members from requiring NDAs of other occupants.
• Technology. Shared space often means shared infrastructure. Confirm that the network is adequate and ask how it is separated between members. If you handle client or regulated data, involve whoever owns your security program.
• Rules and access. Hours, guests, deliveries and noise are set by the operator and may be changed by it. Check how much notice you get.
• Brand and client experience. Consider what a client or recruit sees, whether your name can appear on the door or a directory, and whether you can host a meeting without booking around others.
• Specialized needs. Equipment, storage, clinical use or anything requiring a permit will often rule coworking out quickly.

This is where coworking earns its price. Adding or dropping seats is usually a matter of a conversation and an amended order form, if the operator has room. That matters when you cannot forecast headcount, when you are testing a new city, or when you need a bridge while a new office is being built.

A lease asks you to forecast, then gives you tools to manage the forecast being wrong. Expansion rights, termination options and sublease rights can all be negotiated, though they are not free and they are not automatic. A short lease term is also an option in some buildings, particularly in space that is already built out.

Flexibility also runs both ways. The Miles & Stockbridge explainer states that under general license principles a license can be revoked at will and is personal to the original parties unless the agreement says otherwise. It was written about Maryland law, so treat it as a reason to check, not as a rule. The question to ask is what flexibility the operator has kept for itself.

• ✓How confident are we in our headcount 12 and 24 months out?
• ✓Are we signing a license or a lease, and what can the other side do on short notice under that document?
• ✓What happens to us if the operator’s own lease ends or the location closes? Is any of that written down?
• ✓Can the operator move us to another room, floor or location?
• ✓Can we transfer the agreement if we are acquired or merge?
• ✓What does the price become at renewal, and how much notice do we need to give to avoid an automatic renewal?
• ✓Do we have client, security or confidentiality obligations that shared space would make harder to meet?
• ✓How much does our culture or client experience depend on having a space of our own?
• ✓Is there a middle option, such as a sublease or a furnished, already built space on a short term?

The last question often changes the answer. Companies tend to frame this as a two-way choice when the market offers several steps between a desk and a long lease.

Tenant Advisory Group represents tenants and buyers, not landlords. When a client is weighing coworking against a lease, we build the cost comparison at several headcounts, tour the viable options on both sides, and flag the terms in each agreement that matter for your situation. Your attorney should review whichever document you choose, including a coworking agreement, since those forms are written to favor the operator and are easy to sign without reading.