The Stay Gold building at 1910 E. Cesar Chavez, closed since March 15 (Photo by John Anderson)
An attorney representing the landlord of Eastside music lounge Stay Gold threatened its operators with a breach of contract suit totaling roughly half a million dollars. The warning, following strained negotiations, arrived after the tenants were five days late on August rent.
Dan Castro of Castro & Baker LLP sent an email on Aug. 5 informing Stay Gold owners Nathan Hill and Will Tanner that their landlord, David Contreras of El Leon Cantina, Inc., “has chosen to accelerate the rent due for the entire term of the lease.
“You now owe in one lump sum the entire amount that would normally be spread out over the entire length of the lease, plus attorney’s fees,” Castro’s letter specified.
Hill estimated rent for the remaining four years of the lease totals around $500,000. He and Tanner paid full rent April through July while staying closed because of COVID-19. During extended attempts at renegotiating the lease amid the pandemic, both sides drafted offers the other found unsatisfactory.
Each potential lease addendum involved reducing monthly rent during state-mandated bar closure, though to significantly variant amounts. The landlord’s initial offer involved the Stay Gold partners paying the reduction back in full. Castro says he convinced his client to forgive roughly half of that unpaid balance in a followup offer.
Hill described that offer as merely “extending the possibility of us shutting down later.” He and Tanner, meanwhile, sought an overall rent reduction that would scale back between 28 and 33% over the next four years. Hill, who co-owns a neighboring bar called High Noon that pays a far lower rental rate, has devoted much consideration to how much debt is worth taking on to sustain a venue during shutdown.
“What really matters is how much time you have left to pay back the debt,” he reasons. “At the White Horse [which he co-owns], I still have 10 years [on the lease], so I can still take on debt because I have time to make that back. For Stay Gold, with four years, I have to hope for the best, but plan for the worst, which is that we won’t be open until 2021 and maybe we can’t have bands.
“By that time, we have three years left and I’ll be in as much debt as it took to open the bar originally, when I had 10 years of lease to look forward to and no global pandemic looming.”
As Austin’s small-business community awaits a wave of evictions, Castro’s letter provides a glimpse into possible future scenarios involving landlords.
“Mr. Contreras may not be able to evict you right now, but he certainly can sue you personally for breach of contract, and file a motion for summary judgment for a quick win,” Castro wrote in the missive.
An order issued by Mayor Adler maintains a moratorium on initiating evictions through Sept 30. In the meantime, breach-of-contract lawsuits may function for landlords eliminating tenants who can’t pay full-price amid pandemic.
In the same letter, he points out that even if the tenants file for bankruptcy, the landlord will seek to collect on future value of the lease.
“Moreover, if you file personal bankruptcy, El Leon Cantina, Inc. will file an adversary proceeding in Bankruptcy Court and continue to pursue its breach of contract claim in that court,” writes Castro. “Eventually, El Leon Cantina, Inc. will get its money. And eventually, El Leon Cantina, Inc. will rent the building to someone else.”
In closing, the attorney informs the lessees his client’s latest proposed lease amendment is the last: “I don’t need another email whining about COVID, or complaining about how much money you’re losing.”
Speaking on background, a local elected official and attorney versed in eviction law tells the Chronicle acceleration clauses are common, but it’s unlikely a landlord would be awarded rent for the full lease term.
“The landlord has the obligation to mitigate their losses, so essentially they would need to show that they tried to get somebody new in there, couldn’t within this time, then needed to get X amount from the lease,” he explains. “So if they got a new tenant in, what they’d probably legally recover would only be the gap period between when they didn’t get paid and the new tenant taking over.”
Castro contends a judge will award his client a full-term acceleration windfall because of a statement Hill made in an email to Contreras, explaining that it would be difficult for him to find another tenant at this time.
“They shot themselves in the foot because, under normal circumstances, the building owner has the obligation to mitigate losses by getting the building leased,” Castro related by phone. “But these idiots sent us an email basically saying, ‘You can’t rent this to anybody right now’ and that’s going to be my exhibit A. Motion for summary judgment. Game over.”
The Austin veteran in real estate litigation makes no apology for his hostile letter to the Stay Gold operators, portraying the situation as a “poor struggling Mexican against rich white tenants.”
Contreras, he explains, grew up in the bar at 1910 E. Cesar Chavez, which his parents operated. He later inherited the building, formerly El Leon’s. Rental income stands as Contreras’ only source of income for the mortgage payments on his house, states the attorney.
“I haven’t done a private investigation on these guys, but they’re classic privileged white dudes,” the lawyer says of Hill and Tanner. “They can do more, they’re just trying to take advantage of what, in my opinion, they perceive to be a poor dumb Mexican. They’re about to see what’ll happen when they do that.
“I find it very symbolic that the bar is located on Cesar Chavez,” he adds. “The symbol of poor struggling Mexicans everywhere.”
Tanner, who also owns the Hole in the Wall – given an 80% rent reduction by landlords during COVID-19 – finds that characterization hurtful.
“While I believe racism is real and systemic, in this particular situation that’s not a part of our calculation and there’s no evidence that we’ve ever treated David with anything but respect,” he says. “All I’m asking of him – and he won’t have the conversation, but through a lawyer – is to shoulder some of this responsibility. We paid him full freight this entire time, up until August 1, but I feel like we’re arguing over how to split a pizza and there is no pizza. We have no sales. So it’s not like we’re trying to get a better deal. We’re asking him to go through this with us.”
“People might think that bar owners have a lot of money, but any savings that anybody had has been gone for months now,” says Hill. “[Contreras] is asking us how we’re going to pay his mortgage, when we’re not even paying our own at home. I’m not trying to dehumanize landlords because they’re being hurt too, but that burden does need to be shared. It can’t just be on the tenant to make sure the landlord is getting full dollar when we haven’t sold a drink since March 15.”