Co-working spaces, which aggregate workstations, are gradually making inroads into major cities of India, thanks to ever-increasing commercial rentals and cost of operations. Some international players offer users global access to their worldwide network of co-working offices.
In a co-working space, a furnished office is provided along with internet connection, office printing and stationery, refreshments, rest rooms, conference rooms, electricity, air-conditioning, kitchen and beverage – all on a shared or pay-as-you-use basis.
The basic idea of a co-working space is that multiple businesses and professions operate out of the same building without signing long-term lease contracts. These spaces save new businesses a lot of money on security deposits, stamp duty, registration costs, and others. Moreover, the businesses can choose and change the amount of space they need.
However, legal and commercial challenges abound for businesses operating out of a shared workspace.
First and foremost: Confidentiality. Suppose a rival in the same co-working space gains access to a private email or a client proposal coming off a shared printer. What if that rival reads up all your confidential emails on that laptop you forgot to lock before heading out for a meeting? Sounds damaging, especially for lawyers and medical professionals working on client data who may stare at privacy-violation claims in case something goes horribly wrong.
Confidentiality also looks critical for asset management firms and financial intermediaries as any slip-up in handling price-sensitive information may invite regulatory action. Therefore, it becomes very important, for the user of a shared space, to conduct comprehensive checks on its network, firewall and servers.
The second challenge is insurance and risk cover. How to insure business assets and equipment in a shared space? Who will bear the loss if the damage is due to a third party? Will there be any shared liabilities among the users? Typically, in an independent leased space, business assets and equipment are adequately covered under a comprehensive insurance policy. Liabilities and claims such as those arising from personal injury and property damage can be covered by the landlord, something that becomes difficult in a shared workspace.
Another commercial consideration should be ownership of the building housing the shared working space. What if the owner of the building sells out and the new owner doesn’t want to be in the co-working space business? What can come in handy here is a long-term lease contract, which reserves the right of the lessee to continue operations in the building, irrespective of the change in ownership. Therefore, it becomes important for users to negotiate, accordingly, the terms of the lease deed.
Also, have the formal place of business under a lease contract rather than a shared space. It is more than likely that a business not having a legally recognised right to use premises will face difficulties when applying for certain business and tax registrations. Furthermore, any inspection by the authorities on these shared premises can have repercussions for both the user and the shared-space provider if non-compliance is detected.
To conclude, shared-space arrangements should ensure that businesses do not violate the law and, at the same time, allow flexibility to accommodate the commercial needs of operating from a co-working area.
Puneet Shah is principal associate with Mumbai-based law firm IC Universal Legal. Views are personal.