Landlords who provide office, warehouse, farmland or other facilities to startups and do not get paid rent are contributing slices to the Pie using the non-cash multiplier. So, if your company is using a space that would normally rent for $1,000 a month and you’re using the recommended non-cash multiplier of 2, then each month your landlord would be contributing 2,000 slices to your pie. But, what happens to those slices if you move out? Or, what happens if she kicks you out?
In the event of separation, Slicing Pie creates appropriate consequences for the at-fault party to discourage people from making decisions or engaging in behavior that could harm others. If a participant is at-fault, they lose their slices for non-cash contributions and slices for cash contributions would be recalculated without the multiplier (Some slices may be protected if the company opts for loyal employee protection.) The company could force a buyback at $1 per slice. If the company is at-fault the participant would keep all their slices in the Pie. The company can offer a buyback at $1 per slice.
In many cases, there will be a lease agreement in place. If the landlord violates the terms of the lease she will be deemed at-fault and would lose slices. If the company violates the terms of the lease, the company will be deemed at fault. The landlord’s slices would stay in the Pie and penalties for breaking a lease early might add more slices to the Pie.
Sometimes there is no lease in place. A spare bedroom, basement or garage might be used for the company, but the founders didn’t bother signing a lease agreement. In these cases, you can apply the recovery rules in Slicing Pie.
The recovery rules in Slicing Pie apply to all participants (with limited exceptions for advisors). Remember that a participant can leave a company for four different reasons:
- Fired for good reason
- Resign for no good reason
- Fired for no good reason
- Resign for good reason
The first two reason are the fault of the person leaving and the second two reasons are the fault of the company.
Like an employee, a landlord could be fired for good reason if they commit acts of moral turpitude like stealing from the company or harassing employees, or if they failed to correct problems after two warnings.
For instance, say the electricity went off in your building and you asked for it to be fixed. This is warning one and the landlord should be given a reasonable amount of time to correct the problem. If she does not, the company should ask again, this is warning two. Again, the landlord should be given a reasonable amount of time to correct the problem. If the problem is not corrected, the company should be able to move out and the landlord’s non-cash rent slices would vanish. If she wanted to keep her slices, she should have made sure her building had power!
Conversely, if the company outgrew the space and needed to move into a bigger space they would, in effect, be firing the landlord for no good reason. After all, it’s not the landlord’s fault the company grew!
What if the company grows, but does not move out? Packing 10 people in a space designed for 2 may be a good deal for the company, but it’s not a good deal for the landlord who now has to buy more electricity and heat and toilet paper. This would be a good reason for the landlord to “resign” aka kick the company out. It’s not what the landlord signed up for and she should not be penalized.
Separating from a landlord is basically the same thing as separating from an employee. Instead of time, landlords provide facilities. But, like employees who have a responsibility to perform on the job, landlords have the responsibility to maintain a facility that provides the expected accommodations.
The recovery rules in Slicing Pie aligns the interests of all participants so they behave in a way that will enhance the long-term value of the organization.