Home sharing company Airbnb is a resource many use for lodging while traveling in place of hotel or bed and breakfast accommodations. While the service has been quite popular, Airbnb recently sued a company in which it invested for breach of contract.
Airbnb entrusted a Miami real estate developer to open the company’s first branded apartment buildings. So far, the vacation rental superpower alleges the developer violated their agreement. Airbnb alleges NGD Homesharing and CEO Harvey Hernandez stole $1 million in funds, made unauthorized loans to other businesses controlled by Hernandez, fraudulently backdated documents, breached their contract, and lied on multiple occasions to Airbnb.
In 2016, Airbnb loaned NGD Homesharing $1 million to explore properties that could potentially be used for home sharing spaces. Hernandez also owns Newgard Development Group, which has built several hotels and residences across the Miami area.
In the fall of 2017, Airbnb and Hernandez announced their plans for a 324-unit apartment complex in Kissimmee, Florida. The complex was supposed to be the first in a series of developments that would be branded as Niido Powered by Airbnb. However, it soon became clear tenants at the Niido properties felt they were being underserved.
In January 2019, Airbnb invested $11 million with Hernandez in exchange for a commitment to open seven real estate projects that year and another seven in 2020. However, NGD Homesharing opened zero properties last year and currently operates just the original two. At that time, Hernandez was planning to open condominium towers, where residents would own units purposefully built for home sharing.
Understanding Breach of Contract
When a breach of contract happens, it can be incredibly frustrating for those involved. Not having contractual obligations fulfilled can potentially mean a loss of business for one or more parties. In order to understand a breach of contract, it’s important to know the different types of breaches that can occur. These include:
Fundamental Breach
A fundamental breach of contract occurs when one party to the agreement does not fulfill its obligations by failing to complete a contractual term essential to the agreement. Fundamental breaches generally leave parties unable to complete their own responsibilities within the contract. Since this breach is critical to the contract being carried out in full, it is often grounds for the aggrieved party to cancel the agreement entirely.
Material or Total Breach
A material breach of contract is a breach so severe it renders the agreement “irreparably broken” and defeats the purpose of creating a contract in the first place. If there is a material breach, the non-breaching parties can choose to end the agreement and try to collect damages through court proceedings.
When determining whether a breach was material, courts often look to several different factors, including:
- Whether the other party was deprived of what it bargained for
- Whether the parties were compensated for losses
- What the breaching party will lose or forfeit
- The likelihood the breaching party will resolve the issue
- Whether the breaching party acted in bad faith
- Whether the breaching party is ready, willing, and able to its obligations
- What is stated in the contract
Minor Breach
A minor breach of contract occurs when a party fails to perform a minor obligation under the contract. This failure is small and nonessential, leaving other parties otherwise able to fulfill their other contractual obligations.
The difference between a minor breach and a material breach is that in a material breach of contract, the breaching party fails to fulfill a rather important part or portion of the agreement, or makes it impossible for the contract to be completed at all. A minor breach is less serious, as it does not prohibit the parties from completing the remainder of the agreement.
Anticipatory Breach/ Repudiation
An anticipatory breach of contract or repudiation can occur when one party to a contract indicates through words or actions, that they will not perform their contractual obligations. This action can make it impossible for the other party to fulfill their obligations and can lead to immediate legal action as a result.
Houston Commercial Litigation Attorneys
When one party does not fulfill its obligations under an agreement, it can amount to a breach. In the event of a breach of contract, the injured party should consider all options, including legal action. At Feldman & Feldman, our experienced commercial litigation attorneys have successfully resolved business disputes for over 40 years. We have the skills, bandwidth, and litigation firepower to protect your business. If you believe your business has experienced damages as the result of a breach of contract, contact the attorneys at Feldman & Feldman today to discuss your needs.