At our property practice we regularly come across clients who have encountered major problems because they agreed to let another company or business share their office space. Typically this occurs when clients have excess space and/or they want to help a friendly business who needs offices. It all starts with great goodwill but surprisingly often the arrangement quickly sours.
- Danger 1 - Breaching Your Lease
Businesses will need to weigh up the risks and make sure they do not fall foul of the following dangers:
Your Lease almost certainly prohibits sharing (unless with group companies) and by sharing your offices you are in substantial breach of your Lease and do not think the Landlord will not find out – they will!
If you breach your Lease, there can be costly and serious consequences for your business;
- your Landlord can demand the sharer to vacate the premises immediately and;
- demand damages from you for the breach.
This of course can put you in conflict with your sharer who was not expecting to have to get out at short notice. If the situation drags on, the landlord can even forfeit your Lease and remember you have to pay all the landlord’s costs for their lawyers.
It can be very easy when you agree to share your premises to do so on a “handshake” with no proper written contract. You may do this because you have a great relationship with the other company and you think it is all so clear there is no need for a full written agreement clearly setting out each parties rights and obligations. Almost always such informal arrangements lead to disputes. This is not because one party is unscrupulous but because each party will have a different view as to what was originally agreed. Unless such agreements are written down and are comprehensive each party will think their rights are different, for instance we have had situations where sharers refused to contribute to the service charge because they thought the deal was “inclusive”. It is really important that you have the terms of any sharing agreement in writing and are comprehensive to protect all parties involved. There are various terms that should be included in the written agreement such as the:
- length of the term,
- the rental figures
- payment dates and
- Termination provisions etc.
Without having all these terms in writing, both parties are vulnerable and major problems could and probably will arise.
Tenants of offices enjoy security of tenure under the 1954 Landlord and Tenant Act unless their Lease is expressly excluded from its protection. It is crucial that anyone who occupies your premises (and this includes sharers) is NOT given security of tenure – if they get it, you may find it hard to get them out. If by giving them security of tenure accidentally, you stop your landlord developing his building you could potentially face an enormous damages claim. The problem with most sharing agreements (often described as Licence to Occupy), is the courts tend to regard them as leases on the ancient judicial basis that if it looks like a duck and walks like a duck, it is probably a duck. If you allow a sharer to occupy part of your offices on such an agreement (even if you do not intend or know about it) you are potentially causing massive problems for yourself.
We are not saying do not share offices. It often is sensible, cost effective and can lead to new business relationships and work. You need to fully understand the risks, take professional legal advice and make sure you have a proper agreement in place.