Laundry Room Leases
By Dale S. Alberstone, Esq.

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Several times each month, unhappy owners call me to complain about various provisions in their laundry room leases. Most of the complaints focus on the long duration of their lease (often five to ten years), or on the automatic renewal provision of the lease term.

In other instances, buyers who have just closed escrow for the property will call to inquire if they can cancel the former owner's lease with the laundry company due to the change of ownership, (They cannot.)

Because there are so many other important issues affecting owners, buyers and managers, the legal aspects of laundry room issues are largely ignored until a dispute arises. Nevertheless, these issues should be given careful attention because laundry room leases are often oppressive and unreasonable.

I would urge each reader of this column who has a lease with a laundry company to take out your copy and compare it to the issues which I will raise. Readers who do not presently have a lease with a laundry company, but might in the future, will also benefit from the following discussion.

TERM OF LEASE

Every laundry company will present an owner with its preprinted lease form. The owner's first consideration should be the duration of the lease term. Almost all preprinted forms have the term's length typed in very small numerals or letters. Typically, the period listed is for ten years. Repeat, ten years. This is marvelous for the laundry company, but unreasonably long for the owner.

Probably all services are willing to accept a much shorter term. Apartment owners should try to limit the term to one year, and certainly no longer than two or three years.

AUTOMATIC RENEWAL

Many preprinted forms contain an automatic renewal clause extending the initial term of the lease by an additional like number of years if the owner does not give written cancellation notice well in advance. Owners should insist that the automatic renewal provision be deleted. Instead, substitute language stating that the lease will continue only on a month-to-month basis after the original term expires.

Attorneys faced with owners who want to cancel the lease during the automatic renewal period might consider Civil Code Section 1945.5 which says that language dealing with such a provision in the leasing of "residential real property" is invalid unless it appears in at least eight-point boldface type immediately prior to the place where the owner executes the agreement. The lawyers for the laundry service will undoubtedly argue that the section does not apply because a laundry room lease is in the nature of a commercial, rather than residential, occupancy. I am unaware of any published judicial decision which addresses the issue, and, therefore, believe it to be an open question subject to future judicial resolution. However, to avoid future disputes, delete the automatic renewal clause when executing the lease.

FIRST RIGHT OF REFUSAL

Another provision which seems to be sneaking into more and more form leases is a right of first refusal given by the owner to the laundry service. Such a clause typically provides that if the owner desires to lease the laundry room to another service, the existing company has the right of first refusal to meet any bona fide offer by the proposed new company.

Such a provision is completely one-sided as it benefits only the existing laundry service. Owners should require that such provision be stricken from the preprinted form before they sign the lease.

NEW APPLIANCES

Another little tip is to specifically state in the lease that the laundry company will install new washers and dryers, not reconditioned ones. Unless the lease requires the installation of new appliances, laundry companies frequently install used equipment from existing inventory. Reconditioned appliances never look quite as nice as brand new equipment.

RECORDING THE LEASE

Unless the owner's signature is notarized, the lease cannot be recorded with the county recorder. For that reason, laundry companies sometimes ask for notarization. Other times, the lease will include a clause which authorizes the company to record it, or to record a short summary "memorandum" of the agreement.

All references to recordation should be deleted. By recording the lease, a cloud is placed against the owner's title which cannot be removed without the written notarized consent of the laundry company or a judicial decree. If a dispute arises between the owner and the company, years will pass before the court enters an order expunging the recorded lease from the public record.

INSURANCE REQUIREMENTS

All laundry service companies should be required to obtain public liability insurance covering the owner in the event that anyone is injured by the use, operation or presence of the laundry equipment. Just how much insurance an owner might desire is a matter of personal preference. At lease one major laundry service serving the Southern California area maintains liability insurance "up to the amount of $10 million." Most companies provide coverage between $100,000 and $500,000. Ask to see a copy of the policy before signing the lease.

RENTAL PAYMENTS

Just like any residential tenant, the laundry company must pay rent. Some preprinted leases provide for payments on a quarterly basis. This is unacceptable. Be certain that any lease specifies that payments be made monthly.

The amount of compensation is open to negotiation. Many preprinted forms contain a sliding scale ranging from 25% to 50% of the gross income generated by each machine, depending on the number of quarters collected. The greater the revenue per machine, the higher the percentage rent the laundry company is required to pay. I would suggest that you do not accept such an arrangement.

It is a secret rather well kept by the laundry industry, but most companies will pay a monthly flat fee of 55% or 60% per machine, in a building with eight units or more, regardless of the income. When negotiating any laundry lease, shop around for companies which will pay a set percentage, as opposed to a sliding scale.

COIN-COUNTERS

This is not strictly a legal issue, but nevertheless important. Some companies will place an automatic, non-resettable coin-counter on each machine so that the owner can verify the number of washes and dryings occurring each month. Based on these figures, the owner can independently determine the gross income of the machine.

Coin counters come in two varieties: (1) Viewable from the exterior of the machine and (2) viewable from only the interior. Some companies only offer counters which are viewable when the machine is opened. Preferably, the counter should be installed so that it is viewable at any time. That allows the owner or resident manager to quietly check the honesty and accuracy of the company's monthly distribution of income.

Incidentally, there is no merit to the argument that the counters need to be concealed so that would-be burglars will not know how much money is taken in. A small time thief is only interested in when was the last time that the coins were collected from the machine, not the total number of washes registered by the non-resettable counters.

REPUTATION

What I have not discussed, and which is entirely a business decision, is the reputation of the laundry company under consideration. No company should be selected unless the owner finds that its reputation meets acceptable standards.

Any given laundry company might protest that the suggestions set forth in this column are unacceptable to their "highly reputable" and superior-performing firm. Since their standards are so high, the company might argue that there is no need to alter the preprinted lease provisions discussed in this article. Look askance at those statements. I can tell you from personal experience, as well as experience with numerous clients, that there are many reputable laundry companies providing excellent service that will accept the conditions set forth here.

LITIGATION

When it comes to preventing owners from removing a laundry company's equipment and replacing them with appliances from a new service, some companies are ruthless. They will not allow their machines to be removed and will counter an owner's efforts to remove the equipment with litigation. The best way to avoid litigation is to shorten, as much as possible, the term of the lease, and then have it convert to a month-to-month tenancy following the original expiration. Then, if the laundry company does not act to the owner's satisfaction, it will be only a relatively short time, rather than five or ten years, until the owner can eliminate the existing company in favor of a new service.

Be certain to carefully read all of the fine print in laundry service contracts. Most provisions are negotiable. I have never once read a preprinted laundry lease agreement that was acceptable as presented.

Mr. Alberstone is a prominent real estate and business law attorney and has been appointed to periodically serve as a Judge Pro Tem for the Los Angeles Superior Court. He is also an Arbitrator for the American Arbitration Association.

The foregoing discussion is intended solely as a general overview of the law and may not apply to the reader's particular case. Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.

Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & EVANGELATOS, 1801 Avenue of the Stars, Suite 810, Los Angeles, California 90067-5899. Phone (310) 277-7300.

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