Co-working Spaces and Short-term Licenses

If you’ve ever worked in a shared office with a mix of freelancers, start-ups and small businesses, you’ve probably been in a co-working space. While they are flexible, convenient and increasingly popular, the agreements that make them possible are very different from a traditional commercial lease.

Here we discuss the differences between short-term licenses and commercial leases, co-working and the risks involved, and how the Backhouse team can help you and your business.

In most cases, co-working spaces require a licence to occupy rather than a lease, providing permission to use the space for a set period, which can be days, weeks, or months. This generally has a simpler drafting and administration process. A commercial lease, however, offers exclusive occupancy for an agreed term and may include additional, stronger legal rights.

It is important to note that a licence does not give you legal interest in the property and you do not acquire “security of tenure” under the Landlord and Tenant Act 1954. Put, when the licence to occupy term ends, you do not have any automatic right to remain in the premises. If a licence is not drafted carefully, it can unintentionally become a lease, which can cause difficulties for landlords and occupiers.

There are a number of reasons occupiers and landlords use licenses to occupy co-working spaces, the main one being that licenses are quicker to set up. Licenses often come with less legal costs and no stamp-duty challenges, offering a cheaper alternative to typical commercial leases. They also provide a wider range of flexibility for both parties to manage the space and adjust set-ups to align with business needs.

For occupiers, the arrangement offers a low-commitment way to secure workspace, with one monthly payment covering rent, utilities and shared facilities.
For operators, they also reduce the risk of vacancy, with multiple tenants occupying one premises for varying lengths of time. However, it comes with a need for active management and careful drafting to ensure that the agreement does not cross the line into lease territory.

The most common pitfall for operators is unintentionally creating a lease. If a licence grants exclusive possession for a defined term in return for payment, a court may treat it as a lease regardless of the wording used. This could give the occupier security of tenure and make it far harder to recover possession.

For occupiers, there is also the risk of operator insolvency. If the company running the co-working space fails, licensees may lose access to the space overnight. Unlike tenants, they have little statutory protection and must rely on the terms of their agreement. Occupiers should also be aware that they cannot assign, sublet or make alterations in the same way a leaseholder might.

Co-working licences can be a great option, but they should be drafted and reviewed carefully. Whether you’re taking a space or running one, our experts can help you avoid surprises and make sure the agreement is drafted correctly. Contact our team to book your free initial consultation.

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