Executive Suite vs a Direct Office Lease

An executive suite operator leases a floor or part of a floor, builds it into private offices and shared areas, and rents those offices one at a time with services attached. Scarinci Hollenbeck describes the related office-sharing model this way: the host typically provides a receptionist, internet, office equipment and other amenities, and the occupant signs a license agreement that sets out the fees.

Coworking overlaps with this, and many operators sell both. The usual difference is that a suite centers on a private, lockable office and a staffed front desk, while coworking centers on open seats and memberships. Our guide to coworking vs a traditional lease covers the shared-desk version.

What is in the base fee varies by operator, and it is the first thing to pin down. Ask for a written list that sorts every item into one of two columns.

• Commonly bundled: the furnished office, reception, cleaning, utilities, kitchen and building access during stated hours.
• Commonly metered or extra: conference room hours beyond an allotment, copying and printing, mail handling, phone lines, dedicated bandwidth, after-hours access, parking and any setup charges.

One executive office license filed with the SEC shows the pattern. It provides offices, reception, kitchen, a conference room, internet and telephone, while copy, fax and mailroom services carry added charges above an allowance. It is a single example, not a standard, but it is a useful picture of how these documents divide base from extras.

Your contract partner is different. In a direct lease you contract with the building owner. In a suite you usually contract with an operator who is itself a tenant of the building, and the agreement is often written as a license, not a lease.

The same SEC-filed example states that it does not create a tenancy or any other interest in the licensed office and is subordinate to the operator’s own lease. Either party could end it on 30 days’ written notice, and the operator could decide which offices the occupant used. Your agreement may be different, so read it for those exact points.

Under general principles described in a Miles & Stockbridge explainer, a license is a privilege to use space, with no interest in the land, and it is generally personal to the original parties unless the agreement allows a transfer. A lease gives possession for the term, and a landlord generally cannot end it early without language allowing it. That article discusses Maryland law. Scarinci Hollenbeck adds that lease tenants may have statutory and other protections that licensees may not. Courts also look past labels: as Smith, Gambrell & Russell reports, one court treated an agreement called a license as a lease because of what it actually gave the occupant. Ask your attorney how this plays out in your state.

The sentence to look for is what happens to you if the operator’s own lease ends. If your agreement is subordinate to that lease, your office depends on a contract you have never seen.

Neither option is better in general. They solve different problems.

• A suite tends to fit a small team, a new branch in another city, a project with an end date, or a company that needs an address and a staffed front desk next week.
• A suite also works as a bridge while a build-out is underway or while a headcount decision is pending.
• A direct lease tends to fit a stable or growing team that has outgrown a row of small offices, wants its own entrance and identity, or needs a layout a suite cannot give it.
• A direct lease also fits when you want to negotiate: concessions, a tenant improvement allowance, renewal rights and expansion rights are things an owner may grant and a suite operator usually will not.
• Anything specialized, such as clinical use, heavy equipment or special security, usually points to a lease, because you need control of the space and the build-out.

Watch the point where a growing team starts paying for several separate suite offices. That is when the per-person comparison often shifts, and when the arrangement starts working against how people actually collaborate.

A suite quote per office per month and a lease quote per rentable square foot per year cannot be compared directly. Convert each into an annual cost for the same group of people and the same period.

1. Price the suite with your likely use: the offices you need, plus the meeting hours, printing, phones and other extras you would actually consume.
2. Ask the operator what the price becomes at renewal. A low introductory rate matters less than the cost in the second and third year.
3. Price the direct lease in full: base rent, operating expenses and taxes where they apply, utilities and services, plus furniture, cabling and setup spread over the term. Subtract free rent.
4. Add in the cost of leaving early or restoring the space at the end, for each option.
5. Compare per person, at your likely low and high headcount.

Then consider the middle options. Prebuilt or furnished space from a landlord and subleases can offer some of the speed of a suite while giving you a contract with more substance. These tend to be missed by companies that have only compared the two ends of the range.

• ✓Is it a license or a lease, and does it say it creates no interest in the property?
• ✓Is it subordinate to the operator’s lease, and what happens to us if that lease ends or the location closes?
• ✓Can the operator move us to a different office or end the agreement on notice?
• ✓Does it renew automatically, and how far ahead must we give notice to stop that?
• ✓What is the renewal price, and is there a limit on increases?
• ✓Which services are included, and which are metered? Are extras priced in the agreement or subject to change?
• ✓What deposit is required, and when is it returned?
• ✓Is there a holdover charge if we stay past the end date?
• ✓Can we assign the agreement if we merge or sell the company?
• ✓Can our name appear on the directory and the door?

Have your attorney read the agreement. It may be short, but short forms tend to hold terms that favor the party who wrote them.

Tenant Advisory Group represents tenants and buyers. For a client deciding between a suite and a lease, we compare the options at the same headcount and over the same period, and we show what a direct lease in a similar location could look like so the decision is not made on the suite’s price alone. If a suite is the right answer for now, that is a fine result, and we plan the point at which it should be reviewed again.