Knotel no pay: Lawsuit says company broke profit-sharing agreement

A lawsuit filed in Los Angeles may provide a glimpse into Knotel’s teetering business.

The landlord of a downtown building at 643 S. Olive Street filed a complaint May 8 in Los Angeles County Superior Court that accuses the New York City-headquartered flexible office space business of welching on a profit sharing agreement.

The property owners are three limited liability companies doing business as Olive Center, connected to Mehran Mike Verdi, president of L.A.-based property managers Oakwood Management Group Inc. A message left with Verdi on Wednesday was not immediately returned.

According to the complaint, Olive Center signed a nine-month lease last July with Knotel, in which the tenant paid $18,000 a month for the ground floor space at the 8,800-square foot property. Knotel would then sublease office space to tenants, and provide 80 percent of all sublease income received above the $18,000-per-month rent payments to Olive Center.

These profit-sharing agreements with landlords distinguish Knotel’s business model from WeWork and some other office subleasing companies.

But Knotel allegedly vacated the premises on April 24 (opting not to renew their lease), and never handed over sublease income. “Defendants failed to pay the plaintiff the 80 percent of the excess amount received, and said failure is and was a breach to the term of the lease,” reads the lawsuit filed by Long Beach-based attorney William Robison.

Knotel has said that many subleasees are not making payments amid the coronavirus. But the complaint does not indicate any change in Knotel reneging on the profit-sharing agreement due to the coronavirus pandemic.

The complaint does not specify how much could be owed, other than that the figure is more than $25,000.

A message left with Knotel’s corporate headquarters as well as Knotel CEO Amol Sarva were not immediately returned.

Already a business with an unclear profitability path, Knotel laid off or furloughed half of its employees in March, and reported in April that both one-third of its subletters were not paying rent, and the company wasn’t making its own rent payments in some locations. The firm also said it was in talks to give back 20 percent of its space to landlords.

Knotel made a splashy entrance into the L.A. market last year, signing lease deals at 14 locations throughout L.A. County.

Last month, Sarva told reporters that he still expects Knotel to be profitable this year despite the turmoil.