If you’re a Tenant or Owner-Occupant with some unused private offices, desks, cubes or seats at tables in your workspace, Licensing may be a better way to get some rent or mortgage relief than traditional Subleasing.
Typically, at no additional charge, Licensors also allow Licensees to use their furniture, phone equipment and Internet connections.
Licensing is typically faster, cheaper, simpler, less risky and generally way less hassle than Subleasing. But it won’t work for everyone, especially Occupiers with critical security issues.
Commercial Brokers and 100% Tenant Reps call such unused seats “Shadow Space,” meaning someone is responsible to pay for it via their office lease or mortgage, but no one is actually using it. It’s the nagging empty seats within your workspace.
To help Tenants and Owner-Occupants to find common sense rent or mortgage relief, some are turning to License Agreements to share their idle, furnished workstations with outsiders.
Your Commercial Broker Probably Hasn’t Told You
Surprisingly, some Commercial Brokers in the US are not aware that License Agreements are being used effectively in certain situations instead of true Sublease Agreements.
Most of the time, License Agreements seem to occur when a leased (or owned) space is shared by the Master Occupant, who is the Licensor, with one or more Co-Occupants, who are their Licensees. The key to using License Agreements, in lieu of Sublease Agreements, is that the Main Occupier must remain in the space, too. Absent that, sorry, but it would likely still have to be a more complicated Sublease.
Licensed workspaces are often not separately demised. Co-Occupants often co-mingle within the shared spaces, like reception areas, conference rooms, huddle rooms, kitchen/break rooms and lounge areas. As part of a License Agreement, the Licensor usually offers to share its existing Internet connection, too, sometimes even providing unused phone numbers to the Licensee through its VoIP phone service.
Who’s Licensing Instead of Subleasing?
With an easy-to-use website, LiquidSpace.com is leading the introduction of License Agreements in the US. This website helps Tenants (and Owner-Occupants) to market their unused Shadow Space.
Licensing is primarily done on a month-to-month basis; however, LiquidSpace.com can market special event spaces like conference, board and/or training rooms on a daily or even hourly basis.
I’ve recommended LiquidSpace.com to some of our Clients in the Denver/Boulder Market. They’ve been pleased with the results of having month-to-month Licensees but they have to be careful when interviewing Prospects as potential “office roommates”.
What’s Better About Licensing Than Subleasing?
If you’re a Tenant or Owner-Occupant, why should you consider Licensing your unused offices and workstations, rather than pursuing a traditional Sublease?
- To gain some rent or mortgage and communications expense relief.
- Licensing is much faster, less expensive and simpler than Subleasing.
- Doesn’t require the time, hassle and expense of dealing with painfully unmotivated Landlords. (Many Landlords now charge Tenants a Sublease Review Fee of $300 to $1,000, sometimes plus the Landlord’s legal fees.)
- License Agreements are often only four (4) to five (5) pages, plus maybe an exhibit or two to show the Licensed Private Offices and/or Cubes and any shared areas, plus the building’s latest Rules and Regs.
- Much less risk of losing a Licensee due to a Landlord’s lengthy or delayed approval process for a Sublease.
- Easy, fast way to get important vendors or related companies to be collocated on-site.
- Most License Agreements are only month-to-month, so, if needed, a Tenant or Owner-Occupant can quickly recapture its space or kick out incompatible Licensees. Unfortunately, a Sublease is not so flexible as this.
- Tenants can do licensing themselves, without necessarily involving a Commercial Broker.
Security Needs Might Make Licensing A Bad Idea
Despite all of these plusses for Licensing Agreements, not every Tenant has a security situation that will allow the sharing of an undivided space with a Co-Occupant. In such cases, Subleasing may be the only viable option for a Master Tenant.
The growing acceptance of Coworking Spaces just might prove to boost the increased use of License Agreements, helping Occupiers to put shadow space into active use and to reduce their overall costs of occupancy.
In the long-term, an oversized Tenant might be able to use a Licensing Agreement(s) to fill an expense void until it can permanently jettison excess space at Renewal Time or relocate to a right-sized workspace within the same building or elsewhere.
How to Price Your Empty Seats for Licensing
This is easier than you might think. Just look on Craigslist to see what private offices and cubes are going for today in your part of town. If they don’t show anything available in your area, then look on Craigslist using this URL: https://Add Name of Your City or Submarket.craigslist.org/search/off.
Price your unused workspaces based on what your competition is asking, usually per private office or per cube. Keep it very simple for your Prospective Licensees.
For example, you probably cannot achieve monthly License Fees as high as asking rents at Regus, Intelligent Office, Office Evolution or one the true executive suite operators in your neighborhood. You should be priced below them. In addition, there are now Coworking Facilities in many parts of town, WeWork and Spaces by Regus among them, with lots of shared areas and amenities. You’ll likely have to be priced below them, too, for comparable space.
Generally speaking, in the hipper ‘n kooler parts of town, such as the LoDo and LoHi Districts in Central Denver, you should be able to obtain considerably higher License Fees than in suburban locations. A quick look on LiquidSpace.com will bear this out for both individual private offices and cubes/workstations.
Be careful, though, as Coworking Facilities also advertise low-ball priced “Hot Desks” or “Hot Seats,” meaning that a Licensee has to sit at whatever seat that is available at that hour at a long table, not even a real cube. (Years ago, this was called “hoteling” and it was going to be the Workspace Wave of The Future. Well, it turns out The Experts were right; they just got the name wrong, but hoteling individual seats/desks was an apt description.)
If you are going to offer a permanent, assigned desk to a Licensee, then it should likely be priced higher than a Hot Desk at a nearby Coworking Facility.
The Dogs & Bikes at Work Thing
Be prepared to firmly answer these two (2) questions, which I guarantee that some Prospective Licensees will ask:
#1 – Can I bring my dog to work?
#2 – What about bringing my bicycle in the office?
As long as you want to do it and it meets your Landlord’s Rules & Regulations, which are usually attached as an exhibit to your Lease, then you should answer accordingly.
Nonetheless, I’d recommend thinking a bit harder about allowing dogs at work, especially with Licensees who are not your employees. I love dogs myself but I’ll explain in a moment why this may not be the best idea in the world, despite its popularity with many people.
Some of our Clients who have allowed dogs at work now secretly wish they hadn’t. Furthermore, if they take away the Dog Privileges, they have come to the uncomfortable realization that they’re going to be “Bad Guys.”
So what are the negatives about having dogs at work?
It becomes another culture to manage. That includes poop ‘n pee breaks, accidents on the floor, creating water stations, barking and growling at visitors and vendors the pups don’t know and Rover doesn’t like Bitsy (or worse, you or one of your employees that doesn’t care so much for dogs). In addition, not every dog has graduated from Obedience School, meaning that their masters don’t really know how to keep them under control.
To see all of this in action, go visit a WeWork or other Coworking Facility and see who’s really running the place. It was a surprise for me to observe the dog party. Keep in mind, too, that I love dogs and used to sneak our Cooper into Cushman & Wakefield’s office in Austin on weekends. It was cool when it was just me and Cooper. But when a third of your staff and your Licensees are bringing dogs to work, the situation can devolve pretty quickly. If you don’t want to do it, then don’t let a Licensee sweet-talk you into bringing his or her dog to work.
Get Sample License Agreement
We have found a good License Agreement that Tenants and Owner-Occupants are welcome to download here and then run by their attorneys for legal review.
So far, from the License Agreements I’ve seen, I think it’s good idea to attach your building’s latest Rules and Regulations as an exhibit to all License Agreements. It makes certain that the Licensees are officially on notice that they exist and must be followed to keep their Licenses.
Caution: Licensing Requires the Right Language in Your Lease
There’s one critical caveat, though, if you’re a Tenant and want to leave the door open to potential Licensing in the future. You have to be careful to specifically exempt Licenses and Licensing from the Assignment and Subletting Provision in your Master Lease. Otherwise, if the Master Landlord’s approval is required for a License Agreement, then you’ve already lost some of the biggest benefits versus Subleasing.
Give me a call and we can confidentially chat at no charge to brainstorm about your shadow space, empty desks and Licensing: William Gary, MBA, MIM, at cell +1 303-901-1108 or email wgary@MacLW.com. I can explain more about our process and how we work for Occupiers as 100% Tenant Representatives worldwide.