You’ve found the perfect spot for your coworking space, and now it’s time to handle the financial side of things. Let’s take a look at some of the leasing and financing options available to you and what to consider when negotiating the deal.
Commercial Lease Or Other Approach?
Commercial leases are a unique kind of animal. They’re long-term, vary from space to space, and involve much more negotiation than a residential lease. If you’re going this route, you’ll be locked into a 5-10-year agreement, to ensure that your business plan extends that far.
- That you can run your business under the lease terms
- What happens if you need to break or extend the lease
- Whether you can improve or change the premises
- What additional fees or taxes are involved (including yearly escalations and expense pass thru)
Maybe a traditional commercial lease doesn’t align with your vision. That’s fine. As co-working spaces have become more ubiquitous, so too have non-standard leasing options. Landlords, developer, and even corporate stores are looking for more flexibility, and coworking can provide you with flexibility along with some added brand equity.
Some of the more popular non-standard leasing approaches include joint ventures with your landlord, an owner vs manager venture with your landlord, or a licensee approach. Profit and payment terms of such ventures will vary depending on your agreement.
How Will You Get The Money?
If you’re taking a standard lease option, there are a few ways to get the funding you need to get the ball rolling.
- Bootstrapping – your own funds or loans. Better for smaller “test” spaces that you later expand. Ensure that you have a buffer in case life goes awry!
- Investment/Funding – funds or loans from VCs, business partners or local government. The latter two are a better bet for new spaces.
- Leasing space as a service – most large portfolio managers now have space for lease as a service contract versus a traditional lease. Usually, the available space is smaller but might be a good option for a startup or testing a new business model.
Before you start signing contracts and agreements, have a solid chunk of change available to cover your setup, legal and accounting fees, as well as the first few months of business.
Non-standard leases can be funded in a similar way, but things will be a bit different if profit- or revenue-sharing is involved.
What Should the Deal Cover?
The financial nitty-gritty will be specific to your lease or operating arrangement. But you’ll want to consider:
- What are the pricing terms over the duration of the lease?
- What are the terms if you extend or break the lease?
- Can you sublet or assign the lease to another tenant?
- What are your lease terms? (eg full-service, hours, use agreements, signage, access and security)
- Is there a free rental period?
- Is a deposit required?
- Are property taxes, insurance and maintenance costs included?
- Is a Tenant Improvement allowance included?
- Who maintains and repairs HVAC and other critical systems?
- Who pays for the build-out? (And will you need to pay anything back?)
- Who pays for the furniture? (Will it be leased or bought?)
- Are there/what are the management fees?
- How will profit flow/be divided? (If a non-standard lease venture or a venture with external funding)
- How will disputes be settled?
Be sure to retain a lawyer, investment advisor and accountant to review any documents before signing. But once you’ve signed and the space is yours, you can get on with the exciting part: design the build-out!
Planning a coworking space but not sure how to get started? Drop us a line!