Co-working firm Spaces sues landlord over $5.4M in tenant improvements

A co-working firm is suing its landlord — and it’s not about rent.

IWG, the parent of flexible-office brands Regus and Spaces, is suing the owners of the Water Garden campus in Santa Monica over $5.43 million in tenant improvement reimbursements that the landlord allegedly agreed to, and then failed to pay for the Spaces location at the property.

Spaces “would not have advanced the almost $10 million it has spent to improve that property without a promise of reimbursement,” the complaint filed Tuesday in Los Angeles Superior Court states, arguing that the reimbursements were “material” to its agreement to enter into the lease.

The owner of the office complex is tied to a J.P. Morgan Investment Management-managed entity with unknown investors, according to court filings. A representative for J.P. Morgan declined to comment, and representatives for Spaces did not respond to requests for comment.

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The co-working firm entered into a 10-year, 69,200-square-foot lease at the property last year, marking its second location in Santa Monica and its eighth in the L.A. region.

Court filings show that Spaces’ total base rent for 2020 is more than $5 million, or $6.10 per square foot per month. Average asking rents for the West Los Angeles submarket are $5.24 per square foot per month, per CBRE, making it the priciest submarket in L.A.

After Spaces completed its work and submitted supporting documentation for its reimbursement request, it was told to “expect payment by the 20th of August,” according to the suit. But the landlord did not make the payment on time, and has “rebuffed [Spaces’] efforts to resolve this matter without court intervention.”

Other office tenants at the complex include CBS, Oracle, Roku and video game company PUBG, according to the property’s leasing materials.

The coronavirus pandemic has put co-working firms under severe financial pressure, and several single-purpose LLCs affiliated with IWG have recently sought bankruptcy protection. Competitors like Knotel are also facing a wave of lawsuits over unpaid rent.

Contact Kevin Sun at ks@therealdeal.com.