At the beginning of the pandemic, hospitality startup Sonder extolled its landlords’ “empathy and spirit of collaboration.” Now, one is suing Sonder for $103 million.
Nathan Berman’s MetroLoft Management wants Sonder to leave the developer’s office-to-residential conversion at 20 Broad Street, and pay $3.9 million in back rent and more than $100 million to cover the remainder of its lease, according to a suit filed July 30. The landlord claims the short-term rental startup stopped paying rent last month.
After Sonder allegedly skipped its July rent payment, MetroLoft issued a notice demanding $1.7 million in unpaid rent. A week after that, attorneys for MetroLoft served Sonder with a three-day notice and a lease termination. (That figure has ballooned to $3.9 million with interest and fees, according to the suit.)
But Sonder claims that it ceased operations at 20 Broad in May due to a Legionella outbreak.
“The health and safety of our guests is our number one priority, and we have not found the owner’s approach to remediation and long-term water management issues at the building acceptable,” a spokesperson for Sonder said.
A separate lawsuit brought by residents in April alleged that the city’s Department of Health was testing the water for the bacteria that causes Legionnaires’ disease.
A spokesperson for MetroLoft said the company is “sympathetic” to the difficult environment for the short-term stay industry and was willing to work with Sonder.
“Instead Sonder has chosen the opportunistic route and decided to abandon its lease and use other circumstances as a pretext for vacating the property entirely,” the spokesperson said. “This will not stand and we strongly believe the courts will find in favor of the merit of the landlord’s position.”
But the rent dispute isn’t the first legal fracas at the building. In the April lawsuit, two tenants at the 533-unit building alleged that they were never notified that Sonder would operate a portion of the units. The plaintiffs, which called Sonder a “nightmare neighbor,” complained of a lack of accountability and said the company’s business model created a safety risk.
Unlike Airbnb, which operates on a fee-based model, Sonder rents space and leases it back to users. The lease Sonder signed at 20 Broad Street for 169 units in 2018 marked its first foray into New York City. Sonder’s lease expires in 2029, according to court documents.
In a March 24 Medium post, Sonder wrote that “moments of adversity reveal one’s true colors.” The company, which slashed a third of its workforce, explained that it had contractual rent reductions built into many of its leases, as well as free-rent provisions that would buffer it against the economic impact of Covid-19.
Such provisions do not appear to be included in Sonder’s lease at 20 Broad Street. At the time of the layoffs, the company’s bookings were down 20 percent at the company’s 5,000 apartments across the U.S.
The startup also raised $150 million from investors in May, which at the time sources said was not a “coronavirus bailout.” Sonder has also said it rehired or restored hours for 100 employees.
Founded in 2012, Sonder has raised $400 million to date at a $1.1 billion valuation. The company has garnered investments from Fidelity, WestCap, Alex Rodriguez’s A-Rod Corp.,the Pritzker family through Tao Capital Partners, and Jeff Bezos, through Bezos Expeditions.