In this blog post, Sylvine Sarmah, a student pursuing her B.A.LL.B (4th year) from National Law University, Assam and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses about the various essentials that need to be looked at while drafting a co-working space agreement.
Co-working is a concept that has been in existence globally since 2005. This innovative and efficient concept was brought about by Brad Neuberg, a software engineer from San Francisco, who inaugurated the first communal workspace. Co-working spaces are basically ‘membership-based workspaces where diverse groups of freelancers, remote workers, and other independent professionals work together in a shared, communal setting.’[1] The concept of co-working spaces arose because independent contractors, freelancers, entrepreneurs and work-at-home professionals began yearning for human interaction at their workspaces as an isolated work platform did not inspire creativity.
Co-working spaces and entities providing such co-working spaces are growing at an exponential rate in India because a new start-up is being launched every other day, and there is a dearth of space in India. Moreover, these entrepreneurs face a major problem of financial constraints when they start out. Co-working does away with some of the initial hurdles of starting a business by providing affordable working spaces and ultimately saving money.
One of the most important elements of co-working space is the agreement between the co-working facility and a member of the co-working space. While, the most elementary way to go about this agreement is to work with a lawyer or a firm to draft such co-working space agreements, however, not every entrepreneur can afford a legal agent. Furthermore, such co-working space agreements should most preferably be personalized legal documents catering to the specific needs of each co-working space facility. Hence, it would only be feasible for an entrepreneur running a co-working space to be well aware of the basic requirements of a co-working space agreement. This is because, whoever, drafts the agreement, be it a legal agent or the entrepreneurs themselves, they must always do their homework so that they can work out simple and practicable clauses in the document that best address their requirements.
Here is a list of essentials one must look out for while drafting a co-working space agreement:
Contract should be universal: Anyone can use a co-working space, be it a group of freelancers, start-ups or independent professionals. Moreover, they might want to take up space permanently, i.e., for a long term, temporarily and could be drop-ins or nomads. Therefore, such agreements should be universally applicable to all types of members requesting the service of such co-working spaces. The most competent way to do this is by drafting co-working agreements in the form of a service agreement as opposed to a lease agreement. Service agreements provide the user with a license to use the space, along with any services and amenities, on the terms and conditions that the parties agree.[2] The benefit of such service agreements is that they provide for flexibility and hassle-free unilateral termination of agreements unlike lease agreements, which bring with themselves some restrictions and cumbersome procedures. Furthermore, since co-working spaces are expected to provide a friendly and comfortable workspace, it is best that such agreements should be drafted in a comprehensible language instead of legal jargon whenever possible, so as to make the co-working facility seem more approachable and welcoming.
Nature of the agreement: The nature of the agreement should be such that it gives mere permission to the member of the co-working space to use the premises and the ancillary facilities that come with the co-working space. The bundle of rights brought about by the ownership of the facility will remain with the owner of the co-working space. The agreement should not create any form of tenancy right, title, interest or possession for the member client. The agreement must clearly state the duration of the validity of such a service agreement and the mode through which it will be extended, if and when the need arises.
Respect for community interests: While drafting such agreements, the one specific factor that must always be kept in mind is that the co-working space is a shared office that has been created for the benefit of the entire community of members availing the service. It is crucial that the agreement includes terms and conditions that urge the members not to impede the interests and smooth functioning of other members. Efficient operation of the co-working space is only possible when members respect each others’ right and take the prior consent of the fellow members as well as the facility owners before using the space in a manner that imposes on the interests of the other members such as hosting events, posting signs, etc.
Confidentiality: Co-working spaces involve a significant amount of risks to a breach of confidentiality, not only between the facility provider and the member client but among the members as well. Since co-working space is a shared environment, there is every possibility that sensitive information might be overheard by workers of a fellow member entity. Therefore, the agreement must first include a non-disclosure clause that protects all non-public information of the clients such as personal information provided by the clients while signing up for the service, mail that the clients may receive which is properly channelized through the co-working space’s mail service, sensitive electronic data that is transferred through the co-working space’s internal network, etc. The agreement must further include a stipulation that requires members to keep sensitive information associated with any fellow member entity undisclosed. The inclusion of such a clause will help avoid some unforeseen legal consequences.
Monthly fees and payments: Some of the most important clauses of such service agreements are the ones about the payment of monthly fees, fees for standard recurring services and additional services, renewal fees, the penalty for late payment of fees and security deposit. The agreement must meticulously elucidate on the amount of fees that needs to be paid to the co-working facility for each and every service provided to the client, along with the day and the mode of the periodical payments. It is also important that the agreement specifies the penalty clauses for late payment of fees and the policies concerning the security deposit that has to be made by the client and the deposit refund that the client is entitled to after the client has settled all its accounts with the facility and performed all the necessary obligations.
Insurance: Most co-working facilities refrain from taking the responsibility of looking after the properties brought by the clients to the premises of the co-working space. Hence, the agreement must clarify that the facility is not responsible for any loss or damage to the property of the client brought to the premises by them, and therefore, the clients must arrange for insurance of their property. The agreement ought to recommend clients to purchase rental insurance that covers them as well as their equipment.
Fair use of the premises: A co-working space being a communal space, it is only prudent that the agreement includes conditions dealing with the physical aspects of the space and the equipment provided by the facility as well as equipment of the members. Terms of the agreement should require the members to use the address of the premises as a business address only and for any other purpose, prior consent of the facility owner must be taken. The agreement must include clauses prohibiting installations in or alterations to the premises without the prior permission of the co-working facility owners as changes and installations would not only affect the members making the changes, but the fellow member clients using the premises as well.
Clauses laying down conditions about access to the premises of the co-working space, timings, services and facilities provided by the co-working space also need to be included. The agreement must incorporate terms and conditions which ensure that the member clients utilize the equipment provided by the facility as well as the property of fellow member clients with care and caution and such terms and conditions must also encompass a clause making the member clients liable for any damage or destruction to the property of the facility or fellow members by any employee of that member client.
Most importantly, the agreement must compel member clients not to engage in any online or business activities of a questionable moral character that may damage or otherwise adversely affect the reputation of the co-working facility or that of the fellow members of the space. Such compulsion must also include clauses prohibiting the members from using the internet connection provided by the facility for downloading or using trademarked or copyrighted material without permission, pyramid schemes, spam, identity theft, defaming or harassing others, or uploading, downloading or dissemination of unlawful, profane or indecent material.
Policies of the premises: Each co-working space facility will have a different outlook on smoking, alcoholic beverages, children, pets, and parking. The agreement should also include its policy regarding those above and such policies must adhere to any specific request made by the proprietor of the co-working space.
Termination of the agreement: Since co-working space agreements are service agreements and not lease agreements, the termination of such agreements is fairly easy. Such agreements can be terminated unilaterally by any of the parties to the agreement. However, the period of notice that needs to be provided by either party must be mentioned in the agreement. All the preconditions of handing over the premises to the co-working facility must also be distinctly specified in the agreement.
Co-working spaces are fast proving to be efficient and affordable platforms for start-ups and independent professionals to set up their place of operation. For any entrepreneur wanting to venture into the rapidly growing lucrative business of running co-working spaces, the points as mentioned above would provide sufficient elementary knowledge on the document indispensable to such a business, i.e., the co-working space agreement.
[1] Gretchen Spreitzer, Peter Bacevice, Garrett Lyndon, ‘Why People Thrive in Co-working Spaces’, (2015), HBR 28
