Twitter (X) Found Liable for Over $8 Million in Unpaid Rent for Office Space

We have had a series of posts now on attempts to “cancel” contracts. When NBC claimed to have “canceled” its contract with former Republican National Committee Chair, Ronna McDaniel, she sued for the value of her two-year, $600,000 contract. Elon Musk claimed to “cancel” a contract with Don Lemon to livestream the latter’s show on Twitter (a/k/a X). I don’t know if that resulted in a lawsuit. If it didn’t, perhaps there was no real contract in the first place.

Mr. Musk boasted about all of the contracts that he was canceling when he took over Twitter. He made similar boasts with respect to contracts “canceled” by the so-called Department of Government Efficiency. But contracts generally can’t be “cancelled;” that is, cancellation of a valid, enforceable agreement can give rise to a claim for breach.

That is what happened when Twitter attempted to cancel its lease on office space in Boulder, Colorado. The transaction is complicated — with Exhibits, it comes to 192 pages — but basically Lot 2 SBO, LLC (Lot 2) was to build office space to Twitter’s specifications in exchange for rent payments commencing in 2022. Twitter ceased rent payments in December 2022, claiming that it was entitled to a $5.76 million Tenant Improvement Allowance (TIA), and that it didn’t have to pay rent until that TIA was exhausted. Lot 2 responded that the conditions precedent to Twitter’s entitlement to the TIA had not been met and so it was obligated to continue to pay rent. Lot 2 sued for detainer and breach of the lease. Twitter counterclaimed for breach of contract, wrongful eviction, and breach of the covenant of good faith and fair dealing.

The dispute came down to two paragraphs in a Work Letter, Exhibit E to the lease. After a four-day bench trial, the Boulder trial court ruled in Lot 2’s favor in Lot 2 SBO, LLC v. Twitter, Inc. Both parties asserted that the relevant paragraphs were unambiguous. The Court agreed that the contract is unambiguous, and it found that it could only mean what Lot 2 understood it to mean. 

Boulder, Colorado, Circa 1900

Specifically, Paragraph 4b, which the Court found to be foundational, provides that Twitter would only be entitled to the TIA if it were to complete certain tenant work and that no event of default has occurred. Paragraph 4c sets out Twitter’s right to draw on the TIA to cover rent payments, but the Court, reasonably enough, found that Paragraph 4c cannot be decoupled from Paragraph 4b. Twitter cannot use the TIA to offset its rent obligations when it is not entitled to the TIA in the first place. That was the Court’s view on the plain meaning of the contract.

Evidence that was presented at trial and could be considered on appeal corroborated the Court’s understanding of the parties’ intentions with respect to the TIA. Testimony from Twitter employees confirmed that their understanding of the contract was the same as the Court’s understanding. However, once Twitter made the transition to X Corp., it adopted a deliberate strategy of not paying rent as a negotiating strategy to save money. Ugh. 

The Court then establishes that, as a matter of fact, Twitter did not fulfill its obligations under Paragraph 4b and thus was not entitled to the TIA. It follows that it could not use the TIA to offset its rent obligations. The Court rejected testimony from an X Corp. witness setting out a contrary interpretation as not credible.

The Court found in favor of Lot 2 on all of its claims and rejected all of Twitter’s counterclaims. Lot 2 was entitled to just under $8 million in rent due, a small amount for repairs, damage, and marketing costs, and $350,000 in rent abatement. Twitter argued that Lot 2 had failed to mitigate its damages because it exclusively sought to replace Twitter with another tenant that would occupy the entire building. Considering the testimony of qualified real estate experts from both sides, the Court concluded that Lot 2’s strategy was not unreasonable, and thus it had not failed to mitigate damages.