Elon Musk may be facing more legal woes than he expects after a landlord for one of Twitter Inc.’s offices filed a lawsuit alleging failure to pay $136,260 of rent due on office space used by the social-media company.
“Not paying your debts is a short-term strategy often employed by companies in financial trouble,” said Syracuse University law-school professor Gregory Germain. “But creditors have legal remedies, too. Presumably, Mr. Musk is hoping to renegotiate the terms of Twitter’s obligations with its creditors. How that works out remains to be seen.”
The landlord, Columbia Reit-650 California LLC, filed the suit this week in relation to rent due on office space at 650 California Street, as the Wall Street Journal reported.
Twitter no longer has a media department, one of many teams let go since Musk acquired Twitter in October for $44 billion. He did not respond to a tweet seeking comment on the lawsuit.
The Tesla Inc.
chief executive immediately implemented massive layoffs at Twitter in an effort to cut costs upon closing the deal, and he was also hit by a wave of resignations.
Musk stopped paying rent on the company’s offices and told employees not to pay vendors, according to a New York Times report in early December.
Musk revamped Twitter’s legal department, refused to pay a $197,725 bill for private charter flights made the week of his takeover — and was considering denying severance payments to thousands of people who have been laid off since his deal, the Times reported, citing people described as familiar with internal conversations.
“It is illegal not to pay your rent, in the sense that it is a breach of contract,” said Syracuse’s Germain. “Landlords have remedies if tenants do not pay their rent — they can evict them, and they can sue them for damages for breach of contract. Vendors who have not been paid likewise have remedies to sue for damages, and may stop providing goods and services to Twitter if Twitter fails to pay its debts to the creditors when due.”
The landlord said in the suit that it had informed Twitter in mid-December that the company would be in default on its rent if it failed to make payments for space on the building’s 30th floor within five business days.
Other parties, including a software provider and transportation company, have also sued Twitter in recent weeks to recoup overdue payments, the Wall Street Journal reported.
Musk is clearly under pressure to cut costs at Twitter, which has not made an annual profit since 2019 and which has been loss-making for eight of the last 10 years. The billionaire said in December that Twitter was on track for a negative cash flow of $3 billion a year before he started on his cost-cutting spree.
Musk borrowed nearly $13 billion to finance the deal, saddling the company with interest costs that could total $9 billion over the next seven to eight years, according to the Journal.
Failing to pay severance on contracts that stipulated such payouts is another legal risk, said Germain.
“If Twitter is obligated to pay severance to employees under their employment agreements, then it would be a breach of contract for Twitter not to pay, and the employees could sue for damages,” he said.
Terminated employees will likely be entitled to unemployment compensation, “and the government will pursue claims for unpaid legal benefits if they are not paid, potentially adding penalties to the damages for nonpayment,” he said.
Tesla’s stock, meanwhile, has suffered from the perception that Twitter is creating a distraction for its chief. The stock closed down 12% on Tuesday and has shed 71% of its market value over the past 12 months. The S&P 500
has fallen 20% in the same time frame.
Shares of Tesla logged their worst year ever in 2022. The stock was up 4% on Wednesday.