The clauses to note before inking a co-tenancy agreement

To get into a co-tenancy agreement, you must first identify the right co-tenant as it is you as the chief tenant who will be seeking out a co-tenant. FILE PHOTO | SHUTTERSTOCK

During Covid-19 while many businesses were downsizing by laying off staff and giving up their office space, a friend of mine seemed to have expanded by taking up a bigger office space.

“What is your secret, “I asked her as I congratulated her on the expansion.

“I have rented this big premises with another business and we pay the rent jointly, in the long run, it is cheaper than what I was paying,” she excitedly told me.

Co-tenancies are an innovative way through which businesses can establish their office premises. They allow businesses to access premises they would have otherwise not been able to on their own.

With co-tenancy, two or more tenants lease out the same office premises from the same landlord.

It enables the co-tenants to have access to larger office premises and also accords them some sort of bargaining and negotiating power with the landlord.

In my friend’s model, she and her co-tenant agreed to lease an entire floor in a large upmarket building. Her friend would take one-third of the premises while she also took one-third. The remaining one-third was used by both parties as common areas.

This enabled them to set up a beautiful reception area, lounge and meeting room facilities. They share the common areas and even have common staff like a receptionist and secretary to man the internal common areas.

They contribute equally to the salaries and expenses of manning the common areas.

A co-tenancy works if you have built a good relationship with your co-tenant and have the same objectives. For a co-tenancy to work, it is good to include the landlord in the negotiations.

The landlord may opt to give each of you a different lease document or give one of you the lease. During Covid-19 and immediately after, landlords were very flexible as to the type of arrangements they got into with tenants.

If your landlord is flexible then co-tenancy is an arrangement that can be considered.

To get into a co-tenancy you must first identify the right co-tenant as it is you as the chief tenant who will be seeking out a co-tenant.

You must do due diligence on them, their business and their financial performance. The worst thing is to be left with the burden of paying rent for the entire office premises because your co-tenant is unable to pay their portion.

If you have been invited to co-rent a premise, you ought to also do due diligence on the chief tenant. Why is he or she seeking out a co-tenant?

Is he or she unable to pay rent and looking for someone to pass the burden to?

Once you get a co-tenant then agree on the sizes of the co-rented premises and if possible, draw them and affix them to the agreement.

Then you set the rent for your co-tenant. It is usually pro-rated to the size. This means if someone takes on half the space then they will pay half the rent.

In the co-tenancy agreement, you should have clauses on payment dates and modes, termination and default.

The termination clause should allow adequate notice for you to get another co-tenant.

The default clause should be clear as to what would happen if any of the co-tenants fail to pay their apportioned rent on time.

Due to the risk involved in co-tenancy, it is better entered into with a trust.

Ms Mputhia is the founder of C Mputhia Advocates | [email protected]