- A coworking management agreement is a contract between the owner of a building (the leaseholder) and the coworking space operator
- They are becoming more and more popular as the office industry continues to change post COVID
- When entering into a management agreement, it’s best to treat it like a partnership, be clear on each other’s roles and responsibilities, and equip yourself with the knowledge to add value in the agreement
The strengths of a coworking operator often lie in branding, business development, and building a community.
However, the modern lease agreement requires them to become property managers, contractors, financial experts, and more. This is where management agreements come in.
Coworking management agreements are the ultimate tool to free coworking space operators from the confines of asset management. Operators don’t want to worry about buildouts, lease agreements, and managing financial risk – they want to worry about building their community.
In this article, we’ll introduce you to management agreements and show you how you can use one to expand and grow your coworking business.
What is a coworking management agreement?
A coworking management agreement, also known as a coworking agreement or coworking contract, is a contract between the owner of a building (the leaseholder) and the coworking space operator.
In this kind of agreement, the owner of the building is the de facto owner of the coworking space. Their name is on the lease, they pay the rent and all expenses, and they manage the physical asset.
The coworking operator is then responsible for building the brand, creating the community, and bringing more people into the space. In return, they are paid a fixed or sliding amount for their services.
In a nutshell, coworking agreements marry the branding expertise of coworking operators with the asset management expertise of commercial property owners to create a thriving, revenue generating business.
Why are flexible coworking contracts becoming more popular?
There are two primary reasons why we are seeing coworking contracts increase in popularity: challenges with traditional lease agreements and changes in the market due to COVID-19.
The problem with traditional lease agreements
Historically, coworking operators have taken on traditional lease agreements, wherein they rent a space for a set period of time. As the industry matured, however, operators and landlords began to realize a few challenges with this arrangement:
- There’s a high upfront cost: the cost of the buildout of your coworking space can be massive – not to mention the cost to restore it back to its original state once the lease ends.
- Long-term lease agreements can be risky: it’s typical for coworking operators to enter into long-term lease agreements (ie. 5-15 years). This presents a lot of risk if the market or demand changes over time.
- Operators are inexperienced in asset management: managing a commercial building has a multitude of challenges that operators aren’t prepared to deal with. Their expertise often lies in operating a business, not a space.
- Landlords aren’t maximizing their earning potential: simply renting out a space guarantees landlords income each month. However, it doesn’t fully maximize how much they could be earning with their space.
A flexible coworking contract like a management agreement removes these challenges, while creating a mutually beneficial agreement for both parties.
This article from Hive Life is a great resource for understanding the challenges with traditional lease agreements and how management agreements aim to solve them.
The changes in the office industry post COVID
The global pandemic affected the office industry in significant ways, including creating more vacant office spaces than before. As a result, property owners began looking for more creative ways to fill their empty offices.
Coworking fits the emerging move towards flexible office space perfectly. But rather than create their own coworking space, property owners started to partner with existing operators to help them maximize their earnings.
By bringing in an experienced coworking operator to run the coworking business side of things, property owners are able to create a profitable business out of their otherwise vacant spaces.
Together, these challenges have created the perfect opportunity to introduce a new way of handling renting space in the industry.
Who are coworking space agreements best for?
Most coworking space operators could benefit from a flexible contract like a management agreement.
However, because landlords are taking on much of the risk of starting the business, they typically want experienced coworking operators with a proven track record of success. These operators have:
- One or more location
- A profitable business
- A recognizable or positively associated brand
- Extensive business experience
Coworking agreements are ultimately a partnership. The leaseholder wants to know that you can generate revenue for the business before taking on the risk of starting the space.
The easiest way to prove this is by opening your first space and creating a brand first, most likely under a traditional lease agreement. Proving your ability to operate a successful coworking space will also help you negotiate better terms in your management agreement in the future.
Now, this doesn’t mean you can’t seek out a management agreement if you’re brand new to coworking. Just know that you may find it challenging to find a leaseholder willing to take on the risk of partnering with someone new to the industry.
Possible structures of management agreements
Management agreements are unique to each individual partnership. Therefore, you should never use a management agreement template or lease agreement template as your guide.
However, if you’re wondering what kind of arrangements are most popular for landlords and coworking operators, here are a few that we’ve seen:
- The building owner covers all expenses and pays the operator 5-10% of revenue each month.
- The building owner pays all expenses and keeps all of the revenue until market-rate rent is met. The operator is then paid 20-50% of revenue each month.
- The building owner covers all expenses and pays the operator a fixed amount each month, similar to as if they were an employee of the business.
In almost every case, the building owner is responsible for covering all of the expenses, and therefore keeps the majority of the revenue. As a result, the earning potential of coworking operators is often less with a coworking agreement than with other types of contracts.
Weighing the risks and benefits of coworking contracts for operators
Flexible coworking agreements can be massively beneficial to coworking operators and landlords, filling an important need for both parties.
They don’t come without their challenges however. The table below summarizes the benefits and potential downsides of entering into a management agreement for coworking operators.
|Lower up-front cost||Less control over construction and the building in general|
|Receives a strategic partner to work with||Lower revenue earning potential|
|Good way to scale and expand your business efficiently||May receive unwanted input on the direction of the business|
|Less risk||Do not “truly” own the business|
The biggest potential downside to entering into a management agreement is you do not truly “own” the business. You cannot sell the business, you have less control over the building, and your revenue potential is lower overall.
However, you accept far less risk and have to contribute significantly less up-front capital with a management agreement, making it a good option for some seasoned pros looking to expand efficiently.
If you are expanding your current operations and are looking for a strategic partner with connections in the commercial real estate industry, then a management agreement may be a good fit for you.
Coworking management agreement best practices
Interested in entering into a coworking management agreement? Here are some best practices to keep in mind.
1. Treat it like a partnership
At the end of the day, a management agreement is a partnership and should be treated as such. Both parties have much to lose and gain from working with one another, and you need to be respectful of that.
This means listening to the concerns of the other person, making strategic business decisions with input from the other, and acting in ways that will benefit both parties.
If you’re not prepared for a partnership, then you may want to consider a different approach.
2. Be clear on each other’s roles and responsibilities
Entering into an agreement with a property owner will require a great lawyer. They should help you map out a variety of things including:
- How and when each party will get paid
- What will happen if things end (for whatever reason)
- Who owns the rights to what
- Who does what and when
The final point is one of the most important of the bunch. You want to have a deep understanding of each other’s roles and responsibilities before you sign the contract. This can help to avoid unnecessary conflict and confusion down the road.
3. Maintain control of your brand
Your value as a coworking operator comes from the brand you’ve created. Make sure it is abundantly clear that you own your brand including name, colors, fonts, all marketing materials, and more.
You want to ensure that no one else is able to take your assets and replicate your brand if and when the management agreement is up.
4. Do your research
Research is an important first step in any business venture, including entering into a management agreement. Ensure that you understand not only what a management agreement is, but also:
- The person you’re partnering with
- The building they own
- The neighborhood it’s located in
You want to have a deep understanding of the person you’re going into business with before you sign the contract.
5. Equip yourself with the knowledge to add value
It’s easy to feel like you don’t have much value to add, especially as a coworking operator in an unfamiliar industry like property management.
Empower yourself with the knowledge you need in order to add value to the partnership. Continue to grow and deepen your skills and knowledge of the industry in order to be successful.
Get flexible with your coworking contracts
As the coworking industry matures, the way that space operators rent their space is changing – in favor of the operator.
There’s more flexibility now than ever before when it comes to managing your space. So before you sign on the dotted line, do your research to find a partnership that is going to work best for you and your business.
Looking to market your new coworking space? Here are 23 marketing ideas to help you bring more members into your space.