WeWork Refusing to Pay $33M in Rent as Tactic, Landlords Claim

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Bankrupt coworking giant WeWork (WE) may be fudging the rules by refusing to pay rent as a negotiating tactic in its Chapter 11 bankruptcy proceedings, some of its landlords alleged.

WeWork withheld $33 million in rent that came due Jan. 1 from the owners of six buildings across the country, landlords said in a court filing on Tuesday, first reported by Bisnow

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The landlords argued that WeWork flouted U.S. bankruptcy code since it doesn’t give companies a free pass to blow past their rent due dates, citing similar court decisions dating to 2001 to prove the point.

WeWork appears to be “pursuing a strategy where unilaterally, in an effort to strong-arm negotiations with certain landlords, they can receive all the benefits of their leases” without staying up to date on rent, the landlords wrote in the filing.

A spokesperson for WeWork said in a statement the company is negotiating with landlords at hundreds of locations and has emerged with “mutually beneficial agreements” to amend 40 leases so far. 

“Our temporary actions are intended to expedite conversations to reach resolutions that are in the best interests of our entire ecosystem,” the spokesperson said. “We remain committed to finding mutually beneficial solutions that are better aligned with today’s market conditions, and that will enable us to successfully move forward in our restructuring process.”

After months of speculation about its fate, the long-struggling WeWork filed for bankruptcy in New Jersey in November, lifting about $18.7 billion in debt. Shortly after, WeWork revealed a list of 67 leases it planned to reject at underperforming locations across the country. It came out with 13 more in the following weeks and won the court’s approval to drop all 80, as the Wall Street Journal reported.

Landlords remain on the hook to negotiate the fate of more than 500 remaining WeWork locations, and they are now calling foul on the company’s tactics. The owners accused WeWork of using its status as a problem tenant to win a favorable outcome and skip out on rent payments.

The filing comes after landlords filed a series of six motions this month asking the judge to force WeWork to pay rent that was due Jan. 1. One of the motions has since been withdrawn.

While bankruptcy law allows some leniency and “a number of tools” to help debtors rework their obligations to creditors after filing for bankruptcy, “ignoring the clearly stated requirement to satisfy rent obligations in respect of unrejected leases … is simply not one of those tools,” the landlords argued.

The document was filed by a fiduciary that WeWork’s unsecured creditors formed in recent months to pursue their collective interests, hiring law firms Paul Hastings and Riker Danzig to represent the group.

Attorneys at the Paul Hastings and Riker Danzig did not immediately respond to a request for comment. 

Abigail Nehring can be reached at anehring@commercialobserver.com.