Hospitality startup Sonder is blaming an airborne pathogen for skipping rent payments at 20 Broad Street — but Covid isn’t the culprit.
In new court filings, Sonder accused landlord Metro Loft Management of trying to hide, and ultimately failing to contain, an outbreak of legionella bacteria at the Financial District building.
The Nathan Berman-led firm sued Sonder in July for $103 million, including more than $3 million in unpaid rent and $100 million to cover the remainder of the lease.
Now, Sonder is alleging Metro Loft attempted to flush the building’s water system before the city’s health inspectors could test the water for bacteria, which can cause Legionnaires disease. The landlord sat on inspectors’ findings for at least a week while Sonder guests were potentially exposed, according to the complaint. When Sonder did its own testing, it said it found traces of legionella throughout the building and “insufficient” levels of chlorine to neutralize the bacteria.
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Sonder says it “made repeated efforts to engage with Landlord and Metro Loft, to understand their plan for remediation, and develop a collaborative plan that would benefit all parties and allow Sonder to return guests to the Building,” but was rebuffed, according to court documents.
By late April, Sonder claims it “lost any confidence” that Metro Loft would fix the problem, so it relocated the few remaining guests it had in the building. The company stopped paying rent in July.
Last month, a former guest sued Sonder and Metro Loft after staying at 20 Broad and contracting Legionnaires’ disease. According to the complaint, the guest wound up hospitalized for five days at New York-Presbyterian Hospital.
In a statement, Metro Loft said Sonder’s claims are “without merit” and “constitute an attempt by Sonder to abandon its lease obligations. We fully expect the courts to recognize the pretextual natural of Sonder’s position.”
In 2018, Sonder leased roughly 40 percent of the 533-unit rental building. The San Francisco startup’s business model is to sign master leases and rent out apartment-hotel units for short-term stays. It currently operates 5,000 units across 31 cities, with 7,000 more units in the pipeline.
The Broad Street location became a hotbed of legal activity this year: In April, two tenants in the building sued Metro Loft, claiming they weren’t notified that Sonder would be operating a portion of the units. In the complaint, they called Sonder a “nightmare neighbor” and complained its business model created a safety risk.
Sonder itself is also facing legal challenges: Last month, Merchants Hospitality sued the firm for $2.5 million for allegedly backing out of a deal to lease its 100-unit Z NYC Hotel at 11-01 43rd Avenue in Long Island City.
Sonder was co-founded in 2012 by CEO Francis Davidson and Lucas Pellan, and has raised $560 million. It closed a $170 million Series E round in June at a $1.3 billion valuation. The round was led by Fidelity Funds, Westcap and Inovia Capital.