I’m thinking of sharing some office space with another start-up company. The cost savings are attractive, but we are both fast-growth businesses and I’m not sure what will happen if the other company outgrows their space and moves. Can I cover myself to make sure I’m not forced to move myself or have to cover their costs if this happens?
A serviced office would be the answer for a fast growing business which is likely to outgrow its premises quickly.
However, in relation to your specific question if two separate businesses were to share an office to save on costs, then the lease term should be kept to a minimum, ie. one to three years maximum (plus similar length option periods).
Short lease terms allow far greater flexibility and give one (or both) businesses the chance to vacate, if required, within a shorter timeframe.
A long lease term is risky. More often than not the two businesses will grow at a different pace, and individual plans/goals are likely to change. If one business decides to leave then the options are limited.
One alternative is to try and sub-lease the available accommodation however this is not always easy. The other option is for the outgoing business to simply keep paying their rent for the duration of the term, however this is not always feasible.
The final option is for the remaining business to take over the entire office, however once again this rarely suits. Importantly, if a business does leave and a component of the rent is not paid, this may allow the landlord to terminate the lease at short notice, and this is obviously one of the major risks.
Of course, there are situations where two businesses are well known to each and have similar growth forecasts. In this instance sharing an office can work quite well.