Amanda Schechter and Greg Scott, Nason, Yeager, Gerson, Harris & Fumero, Palm Beach Gardens. Amanda Schechter and Greg Scott, Nason, Yeager, Gerson, Harris & Fumero, Palm Beach Gardens.

In today's modern and flexible work environments, shared office spaces are growing in popularity. A recent Yardi Matrix report found that co-working spaces grew almost 62% in the top 20 office markets from 2017 to 2018. With Miami, West Palm Beach and Fort Lauderdale represented in that top 20 market share, there are some things you need to know before you sign on the dotted line at a communal office space.

There are two common types of agreements that often come into play for these shared office spaces and salon/executive suites: a real estate license agreement and a formal lease. A real estate license agreement (license) grants the holder of the license the right to use the real property of another for a specific purpose. A license does not grant or convey any real property interest in the real estate, but rather grants a right to use the licensed premises. A lease, on the other hand, grants an actual real property right in the form of a leasehold interest in the real estate.

Licenses are becoming more commonplace in the emerging markets of shared office space or salon/executive suites. This is predominately due to the fact that a license is more flexible than a formal lease. The flexibility, as detailed below, appeals to smaller companies or individuals that do not want to commit to a long-term lease and desire little up-front costs. The license arrangement allows these individuals or small businesses to maintain space in a formal office setting without the long-term tenant obligations customary in a lease. From the licensor's standpoint, licenses are desirable due to their flexibility, their limitation in scope and time, and the ability to revoke with little notice.

Depending upon the circumstances, there are instances, however, where a license would not be the appropriate instrument. For example, if the licensee needs a large amount of space for a long period of time or intends to make substantial alterations, construction or improvements to the premises, a more formal lease with typical default/cure provisions would be the more appropriate arrangement between the parties.

In Florida, there are some key factors that the courts use to distinguish a license from a lease, as follows:

  • The license must specifically state that it is a license;
  • The license must be revocable by the licensor without any particular notice, unless a notice period is agreed to in the license agreement; and
  • The license cannot be assignable by the licensee.

Some additional considerations that the courts have utilized as distinguishing factors are as follows:

  • Control over the Premises. The licensor should maintain control over the licensed premises. The tenant is granted exclusive control over the leased premises in a lease scenario. Therefore, the courts may interpret a license to be a lease if the licensee has exclusive use of the licensed premises, especially when coupled with assignability and notice/cure provisions. See Homestead-Miami Speedway v. City of Miami, 828 So.2d 411 (Fla. 3rd DCA, 2002).
  • Essential Services. Since the licensor retains control over the licensed area and the licensee is not granted a property interest in the licensed area, the licensor typically provides essential services to the licensed area such as electric, water, sewer, janitorial, maintenance, and security.
  • Permitted Use. The licensee's permitted use of the licensed area should be narrowly defined. See Keane v. President Condominium Association, 133 So.3d 1154 (Fla. 3rd DCA, 2014). In contrast, generally courts presume to see broader use language for a tenant in a lease scenario.
  • Revocability. Florida, and perhaps other states, recognizes an exception to the revocability at the pleasure of the licensor rule, where the licensee has expended large sums on permanent improvements with the knowledge/consent of the licensor. See Dance v. Tatum, 629 So.2d 127 (Fla. 1993).

While no Florida case law specifically describes the licensor's procedure to enforce revocation and cause the licensee to vacate, the unlawful detainer statute would appear to apply, see Fla. Statute 82.03 (2018). The statute does provide for a fast-track procedure similar to tenant eviction. However, a possible drawback to the same for the licensor is that there is no requirement to post "rent" as a condition of the licensee defending against the revocation proceeding. However, damages in the amount of reasonable license fees during the wrongful occupancy of the licensed premises may be awarded with possession if the licensor prevails in its unlawful detainer claim. The licensor should perhaps consider requesting some security deposit to temper the loss of this statutory protection. Jurisdiction (county vs. circuit court) would depend upon the amount claimed, which would be calculated based upon reasonable license fee value of the property being detained.

As the market for the convenient shared office spaces or salon/executive suites continues to trend upward, the use of the license with its flexibility and minimal risk will very likely increase to meet the rising demand.

 

Amanda Schechter and Gregory L. Scott are shareholders with Nason, Yeager, Gerson, Harris & Fumero in Palm Beach Gardens.