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