Nextdoor filed a lawsuit against property brokerage JLL over claims the real estate firm failed to verify the square footage of a San Francisco building, leading the neighborhood social network to sign a lease that resulted in a larger commission that the brokerage failed to fully disclose.

The San Francisco-based tech company filed the suit, which JLL dismisses, in San Francisco Superior Court over claims of constructive fraud, breach of fiduciary duty and unfair competition, more than four years after enlisting JLL to help it find and negotiate a lease for new headquarters space. Nextdoor ultimately leased the entirety of building at 420 Taylor St. in the city's Union Square neighborhood in late 2019.

A JLL spokesperson told CoStar News that "we firmly disagree with the baseless allegations brought forth by Nextdoor and are confident the facts of this case will prove that JLL acted with integrity and in the best interest of our client. We look forward to defending ourselves in court."

The suit comes amid a dramatically changed growth trajectory for both Nextdoor and the San Francisco office market in the years since the lease was signed. Rental rates have fallen as the city has struggled to recover from a series of pandemic-dealt blows, while Nextdoor is among a cohort of other tech companies contending with slower revenue growth and declining advertising demand.

The company this month said it would lay off roughly 25% of its staff — cutting about $60 million in personnel expenses — as it scrambles to adjust to the weakening economy. Its losses widened to $38 million for the third quarter ended Sept. 30, with the company citing a “difficult advertising backdrop” and plans to restructure the business. Neither the company, which said it had 704 workers at the end of last year, nor attorneys representing the social media company responded to requests from CoStar News to comment.

While the lease spans more than 115,765 square feet, Nextdoor alleges the square footage clocked in at just shy of 89,550 square feet, or about 25% less than advertised, according to the lawsuit. The difference equates to about $20 million more in rent payments through the duration of the lease "for space that did not exist."

Nextdoor argues JLL never verified landlord Seven Equity Group's methodology for accurately measuring the Taylor Street property's square footage. The lawsuit also claims that JLL, New York-based investment firm Seven Equity and CBRE, which represented the landlord, secretly agreed on a commission structure that awarded what it called a "fraudulent" rentable square footage figure that resulted in a nearly $2 million payment for JLL.

The lawsuit claims the arrangement was made among JLL, Seven Equity and CBRE: "Knowing that Nextdoor was the only party that stood to lose from this cozy arrangement, the defendants accepted the proposal. While such arrangements are not per se illegal, real estate brokers must fully disclose the nature and amount of their commissions to their principals and obtain their principals’ prior approval before closing the transaction. But [JLL] nevertheless failed to disclose to Nextdoor their contingent commission arrangement with the landlord."

Nextdoor discovered what the suit called the "malicious" arrangement through a separate lawsuit it filed in 2021 while it was working with its architect to build out the Taylor Street space.

Nextdoor, which alleges JLL's "conflict of interest corrupted the due diligence process," is requesting a refund of JLL’s commission, an injunction against JLL accepting undisclosed contingent commissions in the future and unspecified damages.