By Brian Fung, CNN
A commercial landlord is suing Twitter for breach of contract after the company allegedly failed to pay rent for one of its offices in San Francisco.
The lawsuit concerns Twitter’s office space at 650 California Street, not its main headquarters on Market Street. But it comes after media reports last month said Twitter’s new owner, Elon Musk, had stopped paying rent on Twitter’s office space globally — including for its headquarters — and had told employees not to pay company vendors, in an apparent effort to cut costs. Musk acquired Twitter for $44 billion, including a substantial amount of debt financing.
According to a copy of the complaint filed last week in California Superior Court in San Francisco, Twitter missed a rent payment of $136,260 for its 650 California Street office. That triggered a notice from the landlord on Dec. 16, giving Twitter five more business days to make the payment or risk falling into default.
The complaint by Columbia REIT — 650 California, LLC asks the court to force Twitter to pay the unpaid rent plus interest, as well as the landlord’s attorneys fees. A spokesperson for Columbia REIT, also known as Columbia Property Trust, declined to comment. Twitter, whose communications staff was slashed by Musk after he took ownership of the company, didn’t immediately respond to a request for comment.
Columbia oversees more than a dozen office properties across Boston, New York, San Francisco and Washington, DC, according to its website.
Daniel Bornstein, a real estate attorney in San Francisco who represents property owners in tenant-landlord disputes, said the complaint could be among the first of many to drop if Musk foregoes payment on some of Twitter’s financial obligations.
But due to Musk’s status as one of the world’s wealthiest people, he said, office space owners will be loath to push him too hard. Musk’s deep pockets make Twitter a lucrative renter, at least when it pays, or when it is forced to pay. But landlords who overplay their hands risk driving Musk to abandon the rented spaces altogether, resulting in a costly extended vacancy for the properties, an even worse outcome for the landlords than having to chase the payments in court.
In last week’s complaint, Columbia could have asked the court to evict Twitter, Bornstein said, but it chose not to, suggesting the landlord still values Twitter as a tenant.
“What Elon may be doing by not paying the rent is signaling that he is actually interested in renegotiation of the terms of the lease agreement,” Bornstein said. (The New York Times reported last month Musk is hoping to renegotiate or opt out of some of its office rental agreements.)
Carl Tobias, a law professor at the University of Richmond, said the lawsuit is a natural consequence of Musk’s refusal to pay.
“The litigation is a normal and expected action to occur when a tenant has a lease and does not pay rent required by a valid contract with the landlord,” Tobias said. “These types of disputes often settle without provoking litigation, so as to avoid litigation costs and bad publicity.”
It would be expected, he added, for a landlord to seek attorneys fees on top of the unpaid rent when the landlord has exhausted other efforts to seek payment.
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