Twitter vs. Landlord Lawsuit Could Take Years to Resolve

Twitter, San Francisco, Superior Court of California, San Francisco County, Columbia REIT 650 California LLC, Fennemore Wendel, Oakland, Dentsu International Americas LLC, Bay Area
Courtesy of Columbia Property Trust

By Kate Snyder

Since Elon Musk’s takeover of Twitter in October 2022, the social media giant has been no stranger to headlines. One of the most recent developments is the allegation that the company has failed to pay rent for its San Francisco headquarters and another office.

On Jan. 20, a lawsuit – the second such complaint in under a month – was filed in the Superior Court of California for San Francisco County against Twitter for failure to pay rent at its headquarters, 1355 Market St. According to the complaint, the plaintiff is identified as SRI Nine Market Square, LLC, and alleges that Twitter failed to pay $3.4 million in rent for both December 2022 and January 2023. The plaintiff drew on a letter of credit for the December rent and a portion of the January rent, according to the complaint. However, the landlord argues that Twitter has since failed to replenish those funds as per the terms of the lease and still owes millions in unpaid rent.

The complaint also states that there is contention between the landlord and Twitter over the former’s attempt to increase the LOC amount from $3.4 million to $10 million in November 2022, after Musk took control of the company. The complaint also notes that the landlord for 1355 Market St. has not yet terminated the lease with Twitter and that Twitter still occupies the premises.

The first lawsuit against the firm was filed on Dec. 29, 2022, in the same court regarding the company’s 650 California St. office. The firm’s landlord for that property – listed in the complaint as Columbia REIT – 650 California, LLC – is asking for monetary damages of at least $136,260, which is the same amount of rent that the landlord argues is owed to them. According to the property’s website, the building owner is Columbia Property Trust.

According to that complaint, the landlord served a notice of default to Twitter on Dec. 16, 2022, stating that the firm owed $136,260 in rent and had five days from that point to pay. At the time of the filing, the landlord claimed that Twitter still hadn’t paid and was in breach of contract. As a result, the landlord is seeking attorneys’ fees, related costs and “further relief as the Court may deem just and proper,” in addition to the monetary damages.

“In California, a landlord can’t kick a tenant out,” said Daniel Myers, an transactional real estate attorney. “You have to go through the court process.”

Myers is the director at Fennemore Wendel in the law firm’s Oakland office and vice chair of the firm’s real estate group. He has extensive experience representing commercial landlords and commercial tenants in legal cases. He has no involvement in Twitter’s case but took a look at the first complaint that was filed in December for the 650 California St. office and offered up his own opinion on what it means and what could happen next as the case unfolds in court.

Landlords in California have basically two options when a tenant misses a rent payment, Myers said. The first is terminating the lease and going through an eviction process, which means going to court.

The second option is that the landlord can sue the tenant for failure to pay rent, which appears to be the route that Twitter’s landlord is taking. During the height of the pandemic, when a lot of cities and counties had eviction moratoriums in place, Myers said landlords brought more lawsuits against tenants rather than pursue evictions. Landlords also sometimes take the lawsuit alternative to avoid losing a tenant, particularly in situations where the tenant is leasing office space, which Myers said isn’t so hot in San Francisco right now.

The case involving Twitter’s 650 California office is also more complicated, he said, by the presence of a sublease between Twitter and another company, Dentsu International Americas, LLC, which is not a party to the lawsuit. Generally in a sublease agreement, the tenant acts as a sublandlord and takes rent from the subtenant while still making payments to the landlord, Myers said. Sometimes landlords agree to take on subtenants as their tenants, but in order for that to happen in this case, Myers said the landlord would first have to terminate the lease with Twitter.

“The thing that’s important to remember with subleases is the landlord doesn’t have a contractual agreement with the subtenant,” Myers said. “The other thing that’s really important to remember is the subtenant can be in a precarious position….As a subtenant, you are at the mercy of the tenant performing.”

In terms of resolution, Myers speculated that the landlord in the Twitter case would likely win at trial, but it might take a long time to get there. Between the two different tracks that landlords can pursue against tenants, an eviction tends to be a lot faster because eviction cases have priority and are heard ahead of regular civil litigation. For the lawsuit route, all the timelines are longer and cases can take two, three, four or more years in court.

“This case could end up languishing for years,” he said.

West Coast Commercial Real Estate News