Landlord Almacantar has gone to the High Court seeking to evict WeWork from its most profitable location in London in a move that will be keenly followed by other landlords of the under-pressure flexible office space provider.
A High Court filing, which has just become public, was lodged by developer Almacantar last month over WeWork's largest London office, 10 York Road. The New York-based coworking group occupies 290,000 square feet, its largest space in the world, on a lease with 15 years left to run. The landlord seeks a ruling on what amounts to whether United States or United Kingdom law takes precedent on lease forfeitures in the United Kingdom when a company files for bankruptcy protection in the United States.
WeWork warned in August "substantial doubt exists" about its ability to continue as a going concern and in September announced it was attempting to renegotiate most of its leases globally. It typically leases buildings on long-term leases and then agrees deals with tenants for the space with a package of services agreed at much shorter terms. For a review of how those negotiations are playing out click here.
In November it filed for Chapter 11 bankruptcy protection in a move that it said only affects its business in the United States and Canada.
It has been exiting some leases in the United Kingdom and has sought to reduce its rent at some properties, but WeWork said it is committed to staying at 10 York Road and has paid all of its rent on time with no debt accrued.
Almacantar has filed a claim to take back the space because of WeWork's United States bankruptcy filing. It argues that the guarantor for the lease entered into administration as part of the Chapter 11, therefore under United Kingdom law the lease can now become forfeit. Almacantar issued a Section 146 notice, which applies when a tenant breaks a lease covenant, threatening forfeiture in November.
WeWork is robustly fighting the move, which has clear implications for its other offices in the United Kingdom, and other global businesses.
It said in a statement: “We will vigorously defend ourselves in court, and fully expect to prevail in this process. It remains business as usual for our members and we look forward to continuing to deliver the signature WeWork experience at this flagship WeWork location in the capital."
React News first reported on the details of Almacantar's move in the High Court.
WeWork's leases are held in separate special purpose vehicles in the United Kingdom. It argues its lease guarantee is held by a division of the company, WWC-C , as guarantor. The divsion that filed for Chapter 11 in the United States was WWC-B.
Almacantar argues that under United Kingdom law, the Chapter 11 move, means it can forfeit the lease regardless. It has gone to the High Court to determine whether United States or United Kingdom law takes precedent.
In a counterclaim lodged about two weeks ago, WeWork argues that its landlord wants to relet the premises to a third party, "most likely a direct competitor" who would operate the premises in the same or similar manner while taking advantage of a £50 million fit-out it carried out with a substantial contribution from Almacantar. WeWork says that would amount to "substantial prejudice" as it is its largest and most profitable office in the United Kingdom, and would "generate a substantial windfall" to the claimant.
In December WeWork said November had been its strongest month for bookings in London, with the 10 York Road building topping its list worldwide.
WeWork, which gained a high profile with fast growth in the decade after its founding in 2010, was highlighting areas of strength in its business after reporting a wider third-quarter loss in November because of costs to reduce its real estate and declines in large corporate memberships at a time when some landlords oppose its restructuring plan. In a statement to CoStar News, it reported desk bookings of 4.3 million in 2023, up from 3.2 million in 2022.
The lease restructuring plan aside, the company's struggles seem to be most strongly felt in markets at home. Third-quarter revenue in the United States fell to $305 million from $360 million, even as its revenue in the United Kingdom, Japan and other countries gained.
For a recent look at WeWork's offices in the UK and Ireland please click here.
WeWork signed a deal to take 290,000 square feet at Almacantar's development, called Southbank Place, in 2017. The building sits on a 5.5-acre site on the edge of the River Thames, opposite Whitehall and the Houses of Parliament and adjacent to London’s Waterloo station. WeWork shares the development with the headquarters of Shell.
Almacantar declined to comment.
Ashurst is representing Almacantar while Stephenson Harwood is representing WeWork.