Is it a lease, or isn’t it? We explore how co-working is shaking up the traditional office lease.
With co-working spaces all the rage these days,
more and more companies are ditching traditional leases in favor of something
more flexible.
There are 4,000+ different co-working companies
in the United States, and these operators account for more than 80+ million
square feet of real estate across the country.
The terms of these flexible office memberships
have recently been called into question, with many accounting and real estate
practitioners debating whether or not they constitute a traditional “lease.”
The Financial Accounting Standards Board (FASB)
states that “a lease is a contract that conveys the right to use an identified
asset for a period of time in exchange for consideration.”
Today, most co-working operations offer two
different memberships options – “monthly” and “enterprise” agreements. Monthly
agreements offer access to an open, shared working space or dedicated desk and are
short term (less than a year) contracts, while enterprise agreements
traditionally constitute a larger office space and minimum one-year commitment.
So that means these memberships are technically leases, right?
Not so fast.
Due to the short-term nature of most monthly agreements,
the FASB states that these memberships do not necessarily need to be recognized
on company balance sheets. Any lease that is less than 12 months is at the
discretion of the lessee as to whether or not it is included.
Alternatively, enterprise memberships can be
viewed as leases, pending the agreement clearly outlines set factors like the
seat and office location, time period commitment and the ability to customize
the workspace.
There are still a number of gray areas
surrounding the category and each agreement. We strongly recommend meeting with
your accounting team to discuss the terms of your membership and whether or not
it’s a fit for your balance sheet.
Do you have a dedicated team working across
multiple co-working spaces? If so, then get in touch today to find out how our
easy-to-use app can help manage all aspects of your agreement.
To learn more about how we’re supporting leading landlords, tenants, and brokers across the United States, contact our head of sales, Max Porter: max@leasecake.com or 310-430-1375
