Back to all terms

Management Agreement (Partnership Agreement)

A management agreement between a coworking space operator and a landlord is a contractual arrangement in which the operator manages the operation and administration of a coworking space within the landlord’s property.

Unlike a traditional lease, where the operator rents the space, a management agreement involves the operator managing the coworking operations on behalf of the landlord, often sharing profits based on agreed-upon terms.

What are the common components of a Management Agreement?

Management agreements are becoming very popular in the post-pandemic world. Although they might seem a little more complicated than a traditional lease, they better align both parties.

The following are some of the basic components of a coworking management agreement:

  • Parties Involved:
    • Landlord: The owner of the property where the coworking space is located.
    • Coworking Space Operator: The entity responsible for managing and operating the coworking space.
  • Term and Termination:
    • Duration: Specifies the length of the agreement, including start and end dates.
    • Termination Clauses: Conditions under which either party can terminate the agreement, including notice periods and breach of contract terms.
  • Roles and Responsibilities:
    • Landlord’s Responsibilities: Providing physical space, maintaining the building structure, and complying with local regulations.
    • Operator’s Responsibilities: Day-to-day management of the coworking space, marketing and sales, customer service, maintenance of interiors, and provision of amenities and services.
  • Financial Arrangements:
    • Revenue Sharing: Agreement on how the revenue generated from coworking memberships, events, and services is split between the landlord and the operator.
    • Management Fees: The fees paid to the operator for managing the space, which could be a fixed fee, a percentage of revenue, or a combination of both.
    • Operating Expenses: Clarify which expenses are borne by the landlord and which are the operator’s responsibility.
  • Service Level Agreements (SLAs):
    • Quality Standards: Specifications on the service, maintenance, and customer satisfaction standards the operator must meet.
    • Performance Metrics: Key performance indicators (KPIs) to measure the success of the coworking space management.
  • Insurance and Liability:
    • Insurance Coverage: Types of insurance required, including property, liability, and business interruption insurance.
    • Liability: Allocation of liability between the landlord and the operator for various risks and incidents.
  • Reporting and Transparency:
    • Financial Reporting: Regular reporting requirements detailing financial performance, occupancy rates, and other key metrics.
    • Operational Reporting: Updates on operational issues, customer feedback, and strategic initiatives.

What are the benefits of a Management Agreement?

Many coworking operators choose to partner with the building owners instead of leasing space from them because this arrangement allows for better alignment between both parties and has countless benefits for all parties.

Starting with the Landlords:

  • Expertise: Leverages the operator’s expertise in managing coworking spaces, which can enhance the property’s appeal and profitability.
  • Revenue Potential: Potential for higher revenue through profit-sharing arrangements compared to traditional leases.
  • Risk Mitigation: Shared operational risk with the operator, reducing the landlord’s direct involvement in daily management.

Furthermore, the Coworking Operators are benefiting from:

  • Reduced Capital Expenditure: Lower initial investment as the operator does not need to lease or purchase the property.
  • Market Expansion: Easier entry into new markets by partnering with landlords and expanding the operator’s network of locations.
  • Aligned Incentives: Profit-sharing arrangements align the operator’s success with the landlord’s interests, fostering a collaborative partnership.

Last but not least, the tenants and members of the coworking spaces will receive a better and more consistent experience across the building owner and the coworking operator portfolio of spaces and buildings.

Is management agreement the future of Coworking?

A management agreement between a coworking space operator and a landlord is a strategic partnership that allows both parties to leverage their strengths.

The landlord benefits from the operator’s expertise in managing flexible workspaces, while the operator gains access to prime locations without significant capital investment.

This arrangement can enhance the property’s appeal and profitability, providing tenants with high-quality coworking spaces and fostering a mutually beneficial relationship between the landlord and the operator.

From our experience, the management agreement, similar to other hospitality industries, like hotels, seems like the best option for all parties involved.

Example

Imagine a commercial real estate company owning a prime urban building and partnering with a well-known coworking space operator. The agreement may look like the following:

  • Agreement Details:
    • Revenue Sharing: The operator receives 65% of the revenue from coworking memberships, while the landlord receives 35%.
    • Management Fee: The operator charges a fixed monthly management fee for their services.
    • Maintenance: The landlord is responsible for structural repairs, while the operator handles interior maintenance.
  • Roles and Responsibilities:
    • Operator: Manages memberships, customer service, marketing, and daily operations.
    • Landlord: Ensures the building complies with safety regulations and handles major repairs.
  • Performance Metrics:
    • Occupancy Rate: Target of 80% occupancy within the first year.
    • Customer Satisfaction: Regular surveys to ensure high levels of member satisfaction.

Term's categories