Spell Out Security Measures When Leasing to "On-Demand" Tenant
“On-demand” office companies provide both space and services for small companies and individuals seeking an office and the benefits of being in a traditional business environment, without the cost. Because a growing segment of the market is downsizing and streamlining the services they use, on-demand offices, which essentially are a “pay-as-you-go supportive infrastructure,” are seeing a boom, says Kim Seipel, marketing manager for Pacific Business Centers (PBC), a provider of on-demand offices.
The most common clients of on-demand office providers are start-ups, solo practitioners such as lawyers and consultants, and remote employees who want to appear professional, but don't have the need or budget for independent office space and an administrative staff. As tenants, on-demand office providers have a unique dynamic that makes them a valuable addition to many office buildings, but only if owners are aware of the special challenges they present, and negotiate their leases accordingly.
Reevaluate Security
Typical on-demand office providers offer part- and full-time furnished office space on demand, which includes access to shared conference rooms, technology, and administrative support—one of the main reasons their clients find the idea so attractive. The services and necessary support are already there, notes Seipel, so when start-ups or smaller companies move in, there is no buildout. PBC keeps track of overhead and sends invoices every month so that its clients can see what they're spending and minimize overhead even further, she adds.
As your tenant, an on-demand office provider pays rent, but also has the added value of incubating small businesses that become success stories—and may want to lease larger space in the building from you. Many on-demand tenants have an internal leasing office that deals with their temporary clients. Ask yours to let you or your property manager know when clients are looking to move into more permanent spaces. If a client has had a good experience in your building, you easily can fill an empty space that may be hard to lease in this economy.
But the nature of an on-demand tenant—hosting numerous and varying types of clients for short-, mid-, or long-term use of its office and services—may render your current security measures inadequate and leave you on the hook for accidents or incidents related to its fluid population coming and going from your building.
Negotiate for Balance in Overall Safety
On-demand offices, a concept that has existed for several years under the name “executive suites,” are not new, but they are becoming more common for more owners, many of whom are making long-term commitments because on-demand offices offer services that are useful in a good or bad economy. For instance, Newport National Corporation, owner of the Ventana Real business development in Carlsbad, Calif., recently signed an 11-year lease agreement with PBC, which opened a new on-demand business center there in July.
Take advantage of the benefits of leasing to your on-demand tenant, but carve out provisions in your lease that protect you from on-demand-related issues. Let the tenant know that if it wants to run this type of business, it has the obligation to take the attendant safety precautions, advises Norman D. Bates, Esq., the president and owner of Liability Consultants, Inc.
Require it to provide a visitor list for each day in advance, for example. Ideally, you will want to set up a separate check-in area for on-demand clients and, if you don't already have them, install card readers for use by all other tenants. If possible, ramp up security with either part- or full-time security guards to focus on vulnerable areas or times of day. For example, loading docks and backdoors used for deliveries should be closely monitored. Early morning hours before offices in the building have officially opened, and evening hours after they have officially closed are weak spots in an urban office setting. The dynamic of the building still being open but few people being around can create a bad situation, says Bates, who has dealt with cases where office workers were attacked in such situations.
Work with your property manager and a security consultant to decide what strategies and equipment are appropriate for overall building safety. Your on-demand tenant should be responsible for its share of any extra costs necessitated by only its business. Then, insist on putting those terms in your lease and make sure they actually are implemented.
Many on-demand office providers such as PBC are conscientious on their own about providing appropriate security amenities. Seipel says that PBC has always been concerned with security, setting up cameras when it is appropriate in the building sections PBC occupies and requiring key cards to get into its suites. In its Palo Alto, Calif., location, clients use a key card to enter even internal areas, such as the shared boardroom.
Practical Pointer: Inevitably, there will be accidental opportunities for non-tenants to get into the building, regardless of whether you rent to an on-demand tenant. In any case, some precautions, such as having your property manager lock community restrooms and other isolated areas to discourage non-tenants from using the facilities for assaults or robberies, are always a good idea.
Avoid Liability by Shifting Burden
Shifting the burden to your on-demand tenant for taking special security steps minimizes your liability in the event that there is a problem stemming from its business. Once agreed upon, the measures you and the tenant will each be responsible for should be put in the lease. Incorporating things such as the hours the on-demand tenant will operate, the average number of clients that will be coming and going, how it will set up its check-in procedures, and what security means it will be using—for example, security guards or cameras—will help dictate the best general security strategy for your entire building. But don't overlap services; this will make it harder to tell who is liable if there is a security oversight that leads to a problem.
Also confirm that you have the right insurance. You probably won't need different insurance due to an on-demand tenant, predicts Bates. Most likely a general liability policy will be appropriate; however, if your insurance company thinks that the on-demand tenant poses a higher risk, premiums will be higher, he warns. On-demand offices generally host a transient business-oriented population, as opposed to controversial businesses that pose a greater danger by virtue of the services they provide, he says, making insurance less of an issue for you.
You can have a great, mutually beneficial relationship with an on-demand tenant, provided that you negotiate your lease rights to protect your interests, as well. Remember that, if the nature of its business necessitates extra security or has the potential to leave you liable for an incident, your lease should reflect very clearly what rights and responsibilities both of you have.
Insider Sources
Norman D. Bates, Esq.: President and Owner, Liability Consultants, Inc., 591 Sugar Rd., Bolton, MA 01740; (978) 779-9906; nbates@liabilityconsultants.com.
Kim Seipel: Marketing Manager, Pacific Business Centers, 2225 East Bayshore Rd., Ste. 200, Palo Alto, CA 94303; (415) 230-5300; kim@PBCoffices.com.