How can 4 freelancers/entrepreuners buy affordable liability insurance?

February 21, 2014 10:23 PM

Three friends and I teamed up to rent a small commercial office space to use as a shared office, as we've tired of working at home or in coffee shops. We've signed the lease and moved in. I've been tasked with finding liability insurance, but having trouble as the insurance companies don't know what to make of us. I'm hoping Mefites may have creative solutions.

I'm employed full time as a communications consultant for a small non-profit that gives me a monthly stipend for office expenses; the other three have individual businesses. They are:

- Photographer (recently incorporated, no business insurance yet)
- Graphic Designer (unincorporated, filing her paperwork, no insurance)
- Booking Agent/Promoter (unincorporated, is hired/works for existing venues)

I signed under my own name as did the Graphic Designer, while the Booking Agent and Photographer signed under both their business and own names.

The reason: We were all working from coffee shops or at home with cats, and decided we could be more productive, enjoy each others' company and launch some collaborative projects by founding a co-working space. We found a beautiful, three room (785 sq. ft) space in the heart of our smallish Canadian city's downtown where we can meet clients and work the 9-5, and convinced the landlords to give us a one (instead of 3) year lease.

The lease says: "The lessee shall provide public liability insurance."

Someone other than me did the preliminary legwork on the insurance and was told it'd be a total of about $700 to insure the space. I called my home insurance agent, and after two long, difficult conversations -- the idea of co-working was foreign -- she said they're unable to insure a space that's used by multiple people for different purposes. Instead, we would all need individual business insurance policies, which would start at $550 apiece. That's a lot more than we anticipated spending. And, since I work full-time for another organization, I don't even have a business to insure.

Is the type of insurance policy that's best suited to this situation? How do you deal with insurance in your co-working space. Or is there a way we could skirt the issue by incorporating, becoming a non-profit, or turning the office space into some kind of clubhouse?

posted by lukez to Work & Money (5 answers total)

A group of acquaintances of mine handled this by forming a separate entity to rent the space and to pay for common expenses (including public liability insurance). They in turn each paid their share of the total expenses as rent to this new entity.
posted by RichardP at 10:37 PM on February 21, 2014 [3 favorites]

This jumped out at me: "founding a coworking space". Is this really the intent? For it to be a general coworking space, that could at some points in the future possibly have more members than just you four? Because honestly, I really think that if this is even possibly on the table, the easiest way to handle it is for you guys to get together, form an LLC, have the LLC rent the space and buy the insurance and stuff, and you guys all pay rent to the LLC. This way, if someone leaves, you buy them out of the LLC but don't have a lease problem. If someone joins, they might or might not buy into the LLC, but at least they'll start paying rent, and again, you won't have a lease problem. As far as at that point who sells insurance that takes coworking spaces, I would email around to every coworking place you can find and ask how they're handling it.

Your landlord may want some personal guarantees as well as the organization on the lease, but it should be workable.
posted by Sequence at 1:09 AM on February 22, 2014 [1 favorite]

Unless you form an entity of which you're all members (an LLC or something) you're going to need a separate policy for each of you. Insurance companies won't write policies for people or businesses that have no legal connection to each other. Doesn't work that way.

Your best bet is to form an entity which assumes the lease from the three of you. You'll probably have to explain to the landlord what the deal is and offer personal guarantees. Then that entity goes to the insurance company and gets a single policy.
posted by valkyryn at 4:00 AM on February 22, 2014 [1 favorite]

As a not very helpful sidenote, but just to lodge into the record for the future, this is why you don't negotiate leases without a commercial property real estate broker. That insurance requirement is something a good broker would have struck.

ANYWAY. That ship has sailed. Yeah, Americans would say you need to create an entity (ideally an LLC) that acts as your tenant. That can get over-complicated pretty quickly, but just do it bare bones. The LLC has no real "value" so it doesn't need things like shares and buy-out plans and the like. It's just a shell company. BUT. Canadian LLCs are treated a bit differently from American ones and that could be a huge pain in the ass, so do your research about what kind of entity should be formed.

Another solution, which might be easier, would be to have one person be the leaseholder, and that person provides insurance, and the rest of you are subtenants.
posted by RJ Reynolds at 7:05 AM on February 22, 2014

Canadian LLCs are treated a bit differently from American ones and that could be a huge pain in the ass

It could be a huge pain in the ass in the US too. It's just the only way of getting this thing done without everyone buying their own policy.
posted by valkyryn at 2:10 AM on February 23, 2014 [1 favorite]