A group of WeWork’s members have moved toward suing the co-working giant in a letter sent by Walden Macht & Haran demanding that WeWork cease collecting rental fees. Many tenants have already requested rent relief, cancellation of their leases or stopped paying, which has put over $5.5 billion of CMBS loans backed by WeWork occupied properties at risk. Some of the CMBS loans back WeWork flagship locations in New York and San Francisco. WeWork, who was previously valued at $47 billion before dropping to a pre-covid valuation of $8 billion, has been working to renegotiate leases and has even skipped out to rent at some of their properties. This has in turn caused the price of bonds backed by payments from WeWork to fall drastically.
WeWork has made an effort to keep their locations open during the COVID-19 pandemic, but many of their tenants have expressed that they think WeWork should have shut their locations. Should WeWork not, Jim Walden of Walden Macht & Haran, threatened to start an arbitration process for WeWork members if the company continues to collect the fees in his letter to the company.
“State and local authorities around the country have directed businesses to cease operation and have prohibited workers, including our clients, from using their workplaces,” said Jim Walden. “As long as this pandemic prohibits our clients from using their WeWork office spaces, the purpose of their membership agreements is frustrated, thus excusing their obligation to pay membership fees.”
Tenants have accused WeWork of turning their backs on small business by continuing to collect fees. Due to WeWork’s short term lease model, the co-working giant is more at risk than the standard office landlord as many of WeWork’s tenants have elected not to renew and can be more flexible about actually going to an office as opposed to working from home. Many of WeWork’s tenants do not want to take the risk of going to their WeWork office location during the middle of the COVID-19 pandemic with 1.37 million confirmed cases in the US. Walden claims that the way the leases are structured are closer to that of gym memberships as opposed to true office leases, meaning that under New York law members are not liable for payments if they cannot physically access the space.
“Our clients have no legal obligation to pay their membership fees while the purpose of their membership agreements remains frustrated by the COVD-19 pandemic,” Walden wrote. “Ignoring this fact, WeWork continues charging these members full monthly fees and refuses to offer concessions or compromise.”
WeWork’s problems do not end there. Former CEO and co-founder Adam Neumann is reportedly under investigation for self-dealing by the New York State Attorney General. Additionally, one of WeWork’s major financial backers, the Tokyo-based SoftBank led by Masayoshi Son, walked away from a $3 billion tender offer in April 2020 which was part of the $9.5 billion bailout package SoftBank signed with WeWork in October 2019 following WeWork’s failed IPO. In May 2020 a special committee of WeWork board members filed a motion in Delaware to prevent SoftBank from disbanding the company as they purse legal action against the majority owner SoftBank Group Corp. WeWork’s special committee also represents minority shareholders including co-founder Adam Neumann. SoftBank and the SoftBank Vision Fund, which is a tech-focused venture capital fund with includes capital from the Saudi Arabian and Abu Dhabi sovereign wealth funds, Apple, Qualcomm, Foxconn and Sharp, have invested $14.25 billion into WeWork.