Hotel Asks To Keep Deposit After Buyer Backs Out Over Virus

By Matthew Santoni
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Law360 (August 7, 2020, 2:33 PM EDT) -- The owners of a Pittsburgh boutique hotel and event venue want to keep a prospective buyer's deposit after the buyer walked away from the sale because of the COVID-19 pandemic, according to a lawsuit filed in Pennsylvania state court.

The companies that own the Priory Hotel and Pittsburgh's Grand Hall at the Priory said the Brooklyn, New York-based LLC that had been trying to buy the converted church and monastery backed out of the deal in late July, citing the pandemic's effects limiting travel and large gatherings, and the buyer sought to reclaim a $300,000 deposit that has been held in escrow.

"The COVID-19 pandemic is not a valid basis for termination of the agreement, especially in light of the fact that buyer was fully aware of the existence of the pandemic, and the effects the pandemic was having on the hospitality industry, but nevertheless chose to sign the 13th amendment to the agreement setting a closing date of Aug. 11, 2020, and continuing restrictions on the seller's ability to conduct business," the complaint said. "Buyer's default entitles seller to retain the deposit presently being held in escrow."

In its complaint, filed in the Allegheny County Court of Common Pleas on Wednesday and made public Friday, the Priory asked the court for a declaratory judgment that it should get the deposit.

Priory Hospitality Inc., Priory Holdings LLC and Historic St. Mary's Inc. signed an agreement in late May 2019 with 614 Pressley LLC, the complaint said. 614 Pressley is named for the Priory's address on Pittsburgh's North Side, but it shares a business address in Brooklyn's Gowanus neighborhood with Studio Tack, a design and development company that specializes in boutique hotels.

As part of the deal, 614 Pressley put the $300,000 deposit in escrow with Stewart Title Guaranty Co., the suit said. Despite the buyer's assertion that it had the financial means to purchase the property, the agreement went through several extensions that reduced the sale price and pushed back the closing date and financing contingencies, the suit said.

When the coronavirus pandemic hit, restrictions intended to slow the disease's spread hobbled the hotel and hospitality industry, but the parties signed their 13th extension of the sale agreement in May, pushing the closing date back to August, according to the complaint. The extension also allowed the Priory to remain in business, with limitations.

"The parties agreed to certain restrictions upon seller's ability to book future events and hotel reservations," the complaint said. "In reliance upon the buyer's entering into the 13th amendment, and in anticipation of closing the sale of the property, seller continued to operate its business under the restrictions set forth in the agreement."

But on July 24, 614 Pressley told the Priory, "in absolute and unequivocal terms," that it was not going through with the purchase. A letter from Matthew E. Jassak of Foley & Lardner LLP, which was representing 614 Pressley in the sale, cited a section of the agreement that said there could not be any "material adverse change in the business conducted at the property" that would affect its value or marketability, and said the pandemic had done enough damage to the business' viability that the buyer could back out.

"The COVID-19 pandemic has had a uniquely devastating and disproportionate effect on the property due to travel bans, restrictions on group gatherings, shifting in consumer behavior, large-scale travel cancellations and seller's election at various times to shut down the property," Jassak's letter said. "Purchaser further believes that the material adverse impact on the property will be measured in terms of years, and not months."

Jassak's letter noted that the Priory had held only limited events since the pandemic struck, occupancy at the hotel had plummeted and the owners had taken out a $70,000 loan to remain in business, but the Priory's complaint said the buyer knew all that when it signed the final extension of the agreement.

The suit also claimed the buyer had made representations starting in late May that it was still unable to get enough financing to complete its purchase of the property, despite its earlier promise that it could.

The Priory said it should keep the deposit because 614 Pressley had signed the extra extension knowing that the pandemic was affecting the hospitality industry, and because it had allegedly misrepresented its ability to finance the purchase, so it was the buyer that had broken the agreement.

Representatives for 614 Pressley and Stewart Title did not immediately respond to requests for comment Friday. Counsel for the Priory declined to comment.

The Priory sellers are represented by Christopher W. Cahillane of Tucker Arensberg PC.

Counsel information for the buyers and Stewart Title was not immediately available Friday.

The case is Priory Hospitality Inc. et al. v. 614 Pressley LLC et al., case number GD-20-008352, in the Court of Common Pleas of Allegheny County, Pennsylvania.

--Editing by Stephen Berg.

For a reprint of this article, please contact reprints@law360.com.

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