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Why Subculture Coffee shut down in downtown Delray Beach


Highlights

Subculture’s Rodney Mayo didn’t get written approval for a sublease, which led to lawsuit, coffee shop shutdown

An oral contract isn’t worth the paper it’s printed on, lawyers like to say.

Nevertheless, property owner and restaurant/nightclub impresario Rodney Mayo said he relied on a broker’s word to do a real estate deal.

Unfortunately, the deal led to a lawsuit, a trial loss — and the Monday shutdown of Mayo’s Subculture Coffee Roasters shop in downtown Delray Beach, at 123 E. Atlantic Ave.

On March 6, Palm Beach County Circuit Court Judge Edward Garrison issued a final judgment against 123 East LLC, the entity that leased the space from property owner William R. Burke. Owners of Subculture, based in West Palm Beach, owned shares of 123 East LLC.

In a trial held earlier this month, Garrison ruled the coffee shop had violated its lease with Burke. The trial ended a two-year legal battle between Burke and 123 East LLC/Subculture.

The main source of contention: The sublease of the upstairs floor to real estate brokerage The Knight Group without Mayo first obtaining written permission from Burke to do so. Subculture occupied the downstairs space.

According to court records, the lease limited the use of the entire premises to a restaurant. It also forbade the sublease of space without Burke’s prior written consent.

But Mayo, Subculture’s co-owner, leased the upstairs 1,000-square-foot space to Knight anyway, according to court records. The Knight Group also was named in the eviction action, first filed in October 2015.

The trial and judgment were not mentioned on Subculture’s Facebook page, which announced Monday morning that the store would be closing its doors that night.

Instead, the Facebook post referenced “greedy landlords looking for any excuse to kick out existing tenants despite them paying rent on time.”

“It’s not about greed. It’s about trying to get your tenants to comply with the terms of the lease,” said Burke’s Boca Raton lawyer, Howard DuBosar. “They didn’t want to comply, and they paid the price.”

DuBosar added: “A judge would not enter an order of eviction unless the judge found there were material breaches of the lease, and in this case, that’s exactly what occurred.”

Garrison’s March 6 order gave Burke the right to take possession of his prime downtown Delray Beach space. It also ordered 123 East LLC to pay an accelerated rent of $366,708, plus attorneys fees and costs.

DoBosar said he figured attorneys fees are up to about $70,000, at least.

And Subculture is out the roughly $200,000 it spent to turn the Atlantic Avenue space into the funky coffee shop so popular with patrons.

In addition to Subculture, Mayo owns Respectable Street nightclub and Hullaballo gastropub in West Palm Beach; Kapow! Noodle Bar and Dubliner eateries in Boca Raton; and Howley’s diner in West Palm Beach. (Lost Weekend bar and Kapow! are set to open in West Palm Beach in about a month.)

In an email to this reporter, Mayo said Burke won on a “technicality” based on an oral representation “versus a written.” Mayo said a broker who handled the Subculture sublease to Knight told Mayo that Burke had granted the OK for the deal.

The Knight Group’s Jim Knight, a prominent commercial real estate broker in Delray Beach, said he also relied on a broker’s oral OK about the deal.

“The Knight Group was assured by the listing broker that all parties, including the property owner, approved the sublease,” Knight said. “The Knight Group was not aware there was an issue with the sub-lease until being notified after taking occupancy.”

The broker was Christian Prakas, part of Boca Raton-based Prakas & Co., which handled the original lease between Burke and 123 East LLC.

Prakas flatly rejected statements by Mayo and Knight throwing him under the bus for the debacle.

Both Mayo and Knight are sophisticated real estate professionals who have handled numerous leases and transactions throughout the years.

“I never told anyone there was a lease assignment,” which Prakas said is an OK from the landlord to assign or sublease space. “The three of us assumed it would not be an issue or a problem.”

And indeed, Mayo “was aware” of the lease rules regarding subleasing space in the Burke property, said Mayo’s lawyer, Andrew Strecker of West Palm Beach.

But Strecker said Mayo never thought the sublease would lead to eviction. This was especially the case since the rent always was paid on time, and Mayo is known for being a reliable tenant “with a great reputation.”

The Knight Group leased the upstairs Subculture space back in November 2014. Legal threats, and then a lawsuit, followed the next year. But even as the litigation ground on, Strecker said he believed the matter could be worked out.

“In fact, up until the minute before the trial happened, I believed it was going to settle,” Strecker said.

But it didn’t. “I think I underestimated Burke’s tenacity,” Strecker said.

Prakas, for his part, is deeply upset that the judge’s ruling has created a rift with his longtime friend, Mayo. He’s also upset Subculture employees lost their jobs and Mayo lost his investment in the building.

“It’s unfathomable that (Burke) gets to keep his whole business and equipment. He has a turn-key coffee shop because of a sublease for an office upstairs,” Prakas said.

Mayo concluded Burke wanted the property back “most likely due to the increase in values and his ability to rent the property at a higher rent.”

But even though he lost the space, Mayo tried to remain upbeat about the store’s Monday closing.

“The support from the community was overwhelming and very much appreciated,” he said in the email.

Mayo said he’s actively on the hunt for a new location, and already he’s found a couple of possibilities in the immediate area. Meanwhile, Subculture’s original location at 509 Clematis St. remains open.

But the legal skirmishes might not be over.

Strecker didn’t rule out an appeal of Garrison’s ruling, nor did he rule out litigation involving other parties.

As for The Knight Group, the company has moved back to its former offices, at 10 S.E. 1st Avenue, second floor, Knight said.

Alexandra Clough writes about the economy, real estate and the law.



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