“Schoolyard-style” dispute between landlord and co-living firm

After being sued for bailing on its lease as New York City became the epicenter of the coronavirus pandemic, co-living firm Quarters is taking its would-be landlord to task.

The Germany-based company filed a motion for sanctions in federal court, accusing investor Mark Tress and his affiliated entities of using litigation “as a cover to damage Quarters’ reputation.” The motion alleges that Tress’ lawsuit violates federal rules of civil procedure.

Tress sued the co-living company in May for “opportunistically” terminating its $8 million lease at 251 DeKalb Avenue in Brooklyn and accused Quarters of soliciting bank fraud in a “side letter.”

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Quarters denies the allegations, citing construction delays and threats from Tress as its reasons for walking away from the deal. But the co-living firm is also turning the tables on its former landlord, levelling accusations of its own.

In its motion, filed last week, the firm accuses Tress of suing to “harass and damage” the co-living firm by cherry-picking correspondence between the parties and omitting “critical context.”

Notably, Quarters claims Tress threatened to shut down construction on the project after Quarters refused to grant a “false” estoppel certificate so the landlord could secure fresh financing. The firm also contends that the alleged “side letter” was in fact a proposal to amend the lease.

“There is nothing illegal about the alleged ‘side letter,’ as any modification to the lease must be in writing,” Quarters’ counsel noted in one court filing.

“The allegations were frivolous, and [the] plaintiffs knew them to be frivolous,” argued Quarters’ attorney in the motion to sanction.

Nathaniel Kritzer, partner at Steptoe & Johnson, representing Tress in the dispute, called the motion “frivolous” in a statement to TRD.

“Incredibly, Quarters is seeking sanctions for statements about Covid-related government orders that we didn’t even make, and for allegations in our clients’ complaint about Quarters’ conduct that their own witness didn’t deny when placed under oath. That’s something I’ve never seen before,” wrote Kritzer, referring to government orders to shutter construction sites, and a declaration from Quarters’ senior legal counsel, in which the attorney did not address the alleged “side letter.”

“They have responded with transparent deflection, arguing our clients did something wrong by pursuing their legal rights,” Kritzer continued. “It’s not hard to see straight through their schoolyard-style, reflexive strategy.”

In its motion, Quarters claims Tress’ suit has damaged its business. In court documents, Quarters noted that one of its landlords terminated a lease at another property while citing The Real Deal’s coverage of the lawsuit.

Reached for comment, a representative for the firm maintained that Quarters is seeing “high interest and demand” from renters for its U.S. locations, including a Brooklyn location slated to open this fall.

Quarters’ motion seeks the return of its $209,250 security deposit plus interest, dismissal of Tress’ claims with prejudice and for the landlord to pay its legal fees.

Write to Erin Hudson at ekh@therealdeal.com