Festival of Arts, Terra settle lawsuits over unpaid rent, building mishaps

Terra Laguna Beach was open to customers on July 3, 2021, after being closed for more than a year due to COVID-19. Photo by Daniel Langhorne

The Festival of Arts of Laguna Beach has inked a deal with Terra restaurant’s operator to settle cross-complaints, including claims of unpaid rent and unpermitted construction, court records show.

Terra Laguna Beach, Inc. president Mohammad Honarkar agreed to pay $368,209 for rent due from as far back as April 2020 up until Feb. 28, according to an agreement filed in Orange County Superior Court on May 6. Honarkar must also remove a temporary elevator and replace it with a permanent glass elevator, install a retractable roof system for both dining terraces, design a sound system that will not exceed 40 decibels, and other related improvements.

Terra Laguna Beach is scheduled to have these upgrades reviewed by the Planning Commission. If Honarkar gets all necessary approvals, construction will start on Oct. 1.

If Honarkar defaults on rent or breaches the terms of the agreement prior to March 31, 2023, $75,000 in forgiven rent from 2020 will be due immediately, according to the agreement.

An attorney for the Festival of Arts didn’t immediately respond to a request for comment Tuesday.

“We are pleased to have reached an agreement with the Festival of Arts and excited to welcome the Laguna community to Terra beginning July 1 to enjoy exceptional California cuisine in a beautiful, quintessentially Laguna setting,” Honarkar said in a prepared statement Tuesday.

In November 2021, The Festival of Arts sought a court order to evict Terra Laguna Beach, claiming the restaurant operator failed to pay rent for months and obtain required city permits to install an elevator that would have provided wheelchair access.

The Festival, which leases the publicly-owned grounds from Laguna Beach, worked with Honarkar since at least February 2020 to complete agreed-upon improvements needed for compliance with the Americans with Disabilities Act, according to the complaint filed in Orange County Superior Court.

Among the other gripes was that Honarkar’s company controlling Terra entered a court-ordered receivership by the judge overseeing his divorce. This receivership lasted for more than 30 days, violating the lease agreement with the Festival. In September 2021, Honarkar’s companies exited their latest receivership after reaching a deal with his creditor.

The Festival also complained that Honarkar failed to provide quarterly financial statements of the restaurant’s gross sales for more than a year. The statements would have allowed the Festival to accurately calculate the monthly rate of 12% of gross receipts. These rent payments must annually generate at least $200,000 for the Festival, according to court documents.

Honarkar argued the Festival’s claims were meritless and the complaint is retaliation for a lawsuit he filed in October 2021. His company has invested about $6 million into improving the property since 2019.

“We were able to resolve it amicably and the resolution is going to involve Mo and his companies making a substantial investment in the property to make it more beautiful than it already is,” said Isaac Zfaty, attorney for Terra Laguna Beach. “This is one of the rare litigations where the parties came into it with material differences and were able to resolve it with things being better than they were before.”

According to the initial complaint filed by Terra Laguna Beach, Honarkar relied upon claims by the Festival that the tennis courts off Laguna Canyon Road would be removed to create more parking. That never happened.

Despite the hard closure of the festival ground due to COVID-19, Terra made plans to eventually reopen in 2020 that included hiring Michelin star winning chef Craig Strong. But the Festival refused to allow the reopening, causing Honarkar’s company to suffer millions of dollars in losses, the complaint alleged.

Honarkar has since tapped Strong as the executive chef of Hotel Laguna’s new signature restaurant, Larsen.

In April 2021, the Festival started rejecting Terra’s monthly rent payments. The uncashed checks were returned with correspondence about alleged lease violations, according to the company’s complaint.

In a statement, Honarkar said Terra offered to pay all the rent owed from the year-long closure but the Festival refused to accept it, alleging violations of the lease that don’t exist.

Over 100 artists from Orange County will make up the 2022 Fine Art Show, which returns on July 5 through Sept. 2.

This story is developing and will be updated as necessary.

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