Our startup and small business clients often look to share space with another tenant or partner they work with. While it sounds like a great idea it’s important to understand the challenges associated with sharing space.
In an incubator, accelerator or executive suite, sharing space is in fact accomplished quite easily. The accelerator or executive suite business assumes the risks of tenants sharing space and of the financial downsides of the sharing tenants.
However, there are times when these options are not a good fit and our startup clients look to share space in a traditional lease space. In this scenario, one of the two parties is typically required to assume all those liabilities and issues. That’s where the awkwardness arises.
Here are a few challenges to think about before you and your co-tenant or partner invest time in this idea:
- Your two business likely have separate space needs, tenant improvement buildout needs and therefore TI costs. Separate decision makers, timing, and maybe separate tenant rep service providers. All of this separateness adds confusion, disagreement, conflicting needs. The two CEO’s might come in at the end of the selection process and cause everyone’s time to be wasted when one CEO says, “I don’t like this space or the deal”.
- Except for cartoons, nobody has ever slipped on a banana peel. Regardless, make sure you have a good real estate attorney representing you. They will be aware of all the liabilities that the two parties will assume when they share the space.
- If the landlord allows this (some won’t) they will either have both parties on the hook for the lease or one of the two. In the latter situation (most likely), the one on the lease will sublease to the other tenant. Suppose the lease is for $50/rsf/year, 2,000rsf, and a three year lease is signed. Suppose one of the tenants has financial problems after 12 months. $50 x 2 year’s x 2,000rsf. The signing party now has a $200K problem.
Now a determined and driven CEO of a young company might say, “We can work around all those things”. But if they think about it they might also say, “Yeah, but why should we bother?”
There are other positives and negatives about sharing space with an allied or neighboring company. But in our experience, most companies eventually pass on this idea. The process of jointly agreeing on a space, negotiating mutually beneficial and equitable lease terms, and the difficulty in evenly sharing costs and liabilities are some of reasons most companies end up passing on this idea. Inevitably, each company trying to be in their own space in the same building or in a nearby building might be a better idea. Or, move to an incubator or shared space where the space vendor takes on the liability and issues.