Written by Mike Kriel, CEO of Launch Workplaces
I know how this sounds coming from someone who sells management agreements, but hear me out.
When you sit down to negotiate a management agreement with a flex operator, everyone’s going to want to talk about revenue splits, pro forma projections, and how quickly the space can be filled.
Those are reasonable conversations.
But the first thing you should be focused on is how you get out.
That’s not pessimism. I think of it as protection.
The decisions you make before you sign are what determine how much control you actually have over your own building. And if you don’t have the right exit clauses in place, you might find yourself trapped in an agreement that doesn’t serve you anymore, with no clean way out.
There are four exit rights every management agreement should include.
1. Exiting for cause
This one is straightforward. If the operator does something egregious, whether it’s illegal, fraudulent, or a clear breach of the agreement, you need the right to terminate immediately. No extended notice periods, negotiation, or grace period.
It’s done.
This is table stakes. Any agreement that doesn’t include it isn’t worth signing.
2. Exiting without cause
This is where things get more nuanced, because the operator might not be doing anything technically wrong, they’re just not doing what they said they would do.
Your agreement should have milestones, lookback periods, and performance triggers built in. If those targets aren’t being hit over a defined stretch of time, and there’s no meaningful improvement in sight, you need a mechanism to exit. This shouldn’t be after years of watching the numbers fall short. It should be a specific trigger that gives you a clear path out.
The details of how to structure those milestones are worth their own episode, and we’ll cover them later.
But the principle is simple: underperformance without consequences isn’t a management agreement. It’s a one-sided commitment.
3. Free will termination
Sometimes everything’s going fine. The operator is hitting pro forma. There’s no performance issue. And then something changes.
Maybe it’s that:
- A major tenant falls in love with the space and makes you an offer you can’t pass up
- You decide to reposition the building entirely
- You simply want to go in a different direction
You should have the right to make that call.
A well-structured management agreement gives you the ability to exit without cause, with appropriate notice and conditions, just because circumstances have changed.
You own the building, and that option needs to stay on the table.
4. Assignment rights on sale of the building
This one catches a lot of owners off guard.
You’ve found a buyer. They’re interested in the asset, but they don’t want a coworking operator in there. Maybe they self-perform, or they have a different plan for the space.
And then you realize you can’t sell because you’re locked into a management agreement with eight years left on it and no assignment rights for the incoming owner.
That’s a trap, and it’s an avoidable one.
Your agreement should give the new owner the right to evaluate and, if they choose, exit the management agreement upon assignment.
If they want to keep the operator, great. If they don’t, they need that option. Binding a buyer’s hands before they’ve taken ownership is a deal-killer, and it will significantly limit your ability to trade the asset when the time comes.
Management agreements can be a smart way to bring flex into your building without taking on the full risk of a traditional lease. But they only work in your favor if you’ve protected your ability to change course.
Before you sign anything, make sure all four of these exit rights are in place:
- For cause
- Without cause
- Free will termination
- Trading the building
If you want to go deeper on how management agreements work and what to look for as a building owner, download our free ebook, The Commercial Landlord’s Guide to Flexible Office Space, at launchworkplaces.com/landlords. And check out the full Flex in Five series on YouTube for more.
If you want to learn more about how to put all of this together, download our free ebook, The Commercial Landlord’s Guide to Flexible Office Space, or check out my Flex in Five series on YouTube.
And if you want to talk more in-depth, contact me today. I’d be happy to speak with you.
