Office Share Agreement3/21/2021
Today, flexible office space has taken on a new meaning and the demand for it has grown tremendously in recent years.Driven by advancements in technology, along with new economic and cultural trends, companies large and small are increasingly looking to optimize their real estate portfolios to attract and retain talent and remain nimble in a rapidly changing business environment.
![]() Depending upon the size of the space in question, the financial impact of this determination could be a major factor in a companys decision-making process. This is complicated further by the reality that flexible space can take on many different forms and flexible space providers are constantly evolving their business models in real time, says Jeff Beatty, Senior Managing Director, Financial Consulting Group Director, Global Task Force on Lease Accounting, CBRE. Just because the document is called a membership agreement doesnt mean its not a lease, says Eileen Chan, Executive Director, Financial Accounting Advisory Services, EY. The terms of the coworking agreements themselves are short, ranging from month-to-month to a specified term of upwards of five years. In some cases, automatic renewals are part of the agreements. Its a value proposition that is hard to ignore, and we are seeing everyone from startups to Fortune 500 corporations consider flexible space for a growing number of office requirements, says Michael Dash, Vice Chairman, CBRE. The tenant also has the ability to customize the space, making an enterprise space feel more like their own office than a coworking environment. For instance, is the location of the seats that a company is renting clearly defined Does the flexible space provider have the right to substitute the tenants seats or the location itself. As a result, these agreements are more likely to be considered leases. If not, the cost associated with the arrangement would simply be expensed as incurred. This is because both the FASB and IASB standards allow for a short-term lease exception. If this is the case, at the discretion of the lessee, the lease does not have to be recorded on the companys balance sheet, says CBREs Mr. For example, if a lease has a primary term of one year with a one-year renewal option that is reasonably certain of being exercised, the lease term will be two years for accounting purposes. As a result, it will not meet the short-term lease exception and must be recorded on the companys balance sheet. As a result, the reasonably certain option may come into play in determining whether a flexible agreement identified as a lease must be recorded on the balance sheet.
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