Owner of Hotel Carlton in SF sues Sonder for $1.2M in back rent

The owner of the century-old Hotel Carlton in San Francisco has sued its former operator, Sonder, for failing to pay $1.2 million in back rent.

Sutter Street Property, landlord of the 169-room boutique hotel, has sued the locally based short-term rental company led by Francis Davidson for not paying the rent at 1075 Sutter Street, in Nob Hill, the San Francisco Business Times reported.

The publicly traded short-term rental company still owes about two-thirds of the back rent it agreed to pay in a lease termination agreement from this spring, according to the lawsuit.

That deal was motivated, in part, by Sonder’s failure to pay rent on its original lease in 2022.

The messy departure comes as Sonder seeks to trim thousands of rooms from its global hotel  portfolio to improve cash flow and to fix major accounting errors that understated its net losses over the past two years, according to the Business Times.

Sonder did not respond to a request for comment by the newspaper.

Sutter Street Property entered a multi-year lease with Sonder in July 2022 to operate the hotel as a short-term destination on the Sonder platform.

Last year, Sonder and its landlord filed competing claims with the American Arbitration Association to resolve disputes over the lease terms.

The case was settled in April when Sonder agreed to vacate the hotel and begin paying $1.8 million, part of its delinquent rent, in three monthly installments.

Sonder paid its first $600,000 installment in April but failed to pay the last two in May and June, according to the lawsuit.

Though Sonder acts as a competitor to short-term rental giant Airbnb, it also works collaboratively with that company as one of the biggest landlords for Airbnb rentals.

It’s unclear how many of Sonder’s properties in San Francisco are still open for business. The troubled company is trimming its underperforming lease commitments this year to try and free up $40 million in annual cash flow.

Last month, Sonder announced it had signed agreements to exit or reduce rent in 105 buildings with 4,300 rooms, vacating 80 of them across its portfolio this year.

The company lists one available property in San Francisco, at 135 Gough Street in Hayes Valley, on its website, starting at $183 per night. It has previously advertised stays at Hotel Bijou at 111 Mason Street and Found Union Square at 140 Mason Street.

— Dana Bartholomew

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