Important paragraphs to look for in a laundry lease

[Michael Calderaro]

Greetings Gentle Readers!

Important Disclosure: I am not a real estate attorney and I only offer my anecdotal and my 30+ years' work experience in the informational blogs I write. Should any legal question arise from your readings please consult with your in house counsel or locate an attorney for a legal opinion. I'm happy to give my opinion/response which is business based and not grounded in real estate law.

Here's a quick "laundry list" of lease paragraphs...this is not all inclusive as each lease may be modified and negotiated by both counter parties....but it should suffice to kick start a discussion....

Firstly, Keep in mind that the laundry vendors have written the leases they prefer to use and generally it's written to their benefit but if you read the leases carefully you'll find there are areas that are negotiable and non negotiable. Not all laundry vendors use the same format, language and clauses so don't assume one lease is like another.

• Preamble - identifies Lessor (property) and Lessee (laundry vendor) - includes date of execution & lessor description and address,

• A typical lease will include number of apt. units and identifies number of units with connections (if applicable) - keep in mind that if you have in-unit connections for washes and dryers you present competition for the laundry room resulting in possibly reduced usage and reduced revenue. Laundry vendors will want to know how many in unit connections are in play at lease execution. That is a known risk. Furthermore there will be a "non compete" clause to prevent the apartment from adding additional in unit connections. This will be non negotiable.

• Term of the lease is usually a paragraph of its own...this is where one might find the "auto renewal" clause and possibly "right of first refusal" clauses but not necessarily...make sure both of these are struck during the negotiation. They do not serve the property owner at all. Depending on the laundry vendor you could get some push back on the auto renewal clause but if you don't want it, insist it be scratched. Pro Tip: some vendors will have the auto renewal clause buried in another paragraph so make sure you read the entire contract carefully.

• Rent paragraph typically spells out the revenue share - that's another blog of its own but generally speaking it is a percentage of the gross collections identified in various equations of percentage of revenue or some percentage over a minimum base amount per machine per day. Pro Tip: Rule of thumb: revenue is a pie, the bigger the slice your property takes in monthly commission the lower the "upfront" payment can be and vice versa. And over the life of the lease your property will ALWAYS get more revenue if you take -0- upfront and a higher slice of the the pie in the form of monthly rent.

• Lessor's & Lessee's authority to execute lease is a separate paragraph. Pro Tip: This paragraph essentially says whoever is signing the lease has the authority to sign it. I've encountered many owners unhappy that a property manager signed a 10 year lease but this paragraph authorizes them.

• Insurance coverage is another separate paragraph - typically the Lessee (laundry company) will spell out how much PL & PD insurance coverage if offered. Generally speaking the laundry vendor should spell out the exact dollar amount and not utilize vague language like "reasonable amount" of insurance. That's fodder for lawyers to argue. Pro Tip: Make sure the laundry vendor names the property as "co-insured" and does not simply provide a certificate of insurance for the property's file

• Since laundry leases are "real property" leases a separate paragraph will spell out that the laundry lease conveys when the land is sold.... so any property that is sold while the lease is in effect will be required by law to assume it. - this is often times confusing for a new or amateur owner who may not be schooled in real property leases. I can't count how many times in my experience a new owner claimed their lease wasn't valid because they didn't sign it. Provided the lease has not expired or has not been breached the lease conveys and is valid. Period Pro Tip: Laundry machines are tagged with identification from the laundry vendor which, one could argue, puts any potential property buyers on "constructive notice" that the vendor has a lease on the space. Ensure any liens on the property made by the laundry vendor turn up during title search when purchasing a property. These should appear in the title search. Most all laundry vendors will record a memorandum of lease and not the lease as it contains too much information for public digestion. 

• Viability or enforcement of lease clauses paragraph - while this is a lot of legal jargon here it boils down to say if any ONE paragraph of this lease is found to be invalid that the rest of the lease will remain valid and in force. Pro Tip: This is a standard and non negotiable clause.

• Cause and cure for breaching lease - this may or may not be in the standard lease but essentially this paragraph stipulates what actions or lack thereof could cause a breach and how much time does the beaching party have to "cure" the breach. Most obvious breach would be non payment of rent but there are others, installing additional in unit connections for example. Pro Tip: Look for or add language to ensure the property does not get entangled into a "cause/cure/cause/cure" merry go round on the same "cause".

• What generally is conspicuous by its absence is any metric that measures performance as the laundry vendors want to avoid that as the intent of the lease is to be construed as a real property lease and not a service agreement (which can be more easily cancelled). However, property managers and owners can insist on language being added to protect them from poor service given a 7 or 10 year lease. Pro Tip: Typically a service response of X hours can be included (but it needs to be within reason, i.e. 48 hours not same day). Keep in mind "Service response" is not the same as "fixed". Ensure the language is adequate to cover that.

Keep in mind that laundry leases are negotiable instruments and that a "one size fits all" is not a very good approach for either counter parties. Each property is a separate and distinct opportunity based on demographics, occupancy, location, access to laundry and in unit connections.

Feel free to comment or ask a question. I appreciate the feedback!