Frank Lovece in COVID-19 on January 25, 2021
When the coronavirus pandemic hit New York, tens of thousands of New Yorkers hit the road. Many are still gone. That means co-op and condo laundry rooms may be getting less use than usual – which translates into less revenue. And that may trigger this little-known provision in a board’s contract with its laundry-room company: if a specified threshold of revenue isn’t being reached, then the company can stop paying monthly fees to the board until it is.
“Some of my luxury buildings are a third or half vacant,” says Ken Jacobs, a partner at the law firm Smith Buss & Jacobs. “And the laundry concessionaires are, in fact, invoking that clause from time to time.”
Managers, attorneys, a laundry-company executive and others surveyed for this story agree that lower laundry-room revenue is a real issue at many co-ops and condos, and therefore boards need to know what to expect and what to do when a laundry company wants to trigger that provision in its contract.
Laundry-room companies generally work with co-ops and condos in one of two ways. After installing washers and dryers and sometimes renovating the room, the companies either pay a monthly flat fee and collect 100% of the machines’ revenue, or they pay no monthly fee and split the machines’ revenue with the building. Some contracts are a mix of both.
Additionally, there are two types of contracts: leases and license-to-use agreements. It’s usually easier to terminate a license agreement than a lease because disputes over leases have to be settled in the landlord-tenant part of civil court. If a dispute over a license arises, on the other hand, the board could seek a declaratory judgment against the licensee as opposed to a time-consuming eviction proceeding.
Most contracts have a provision that if the company’s revenues average less than a certain amount during any three-month period, then the company has the option, after giving the board 30 days’ notice, to terminate the lease or pay a reduced monthly rent retroactive to the first day of the three-month period.
“A lot of these boilerplate leases have provisions along those lines,” says Denise Savino-Erichsen, the president of Automatic Industries, a laundry company. “In very simple terms, we cannot pay $2,000 per month if the building is only generating $1,200.”
When a laundry-room company does invoke that provision, a board’s first response should be unequivocal, says Dennis DePaola, an executive vice president and the director of compliance at the real estate company Orsid New York. He tells companies: “If you do have a hardship, you need to document it, and you need to give us proof of your collections.”
What’s the typical response? “Some of them provide the collection numbers, and you look at them and see that, yes, there has been an impact in those rooms,” DePaola says. “In that case, the agreement allows the company to reduce what they’re paying for this period.” If a company balks at providing numbers, contracts almost invariably allow a board to request an audit.
Should the numbers pan out, the board’s next step depends on its relationship with the laundry company. “If the laundry company has been good, then you need to understand where they’re at,” says Alan Warshavsky, a senior account executive at the management company Gumley Haft. “You try to make a reasonable business decision and see if you could reduce their monthly payment or make it free for a limited period of time, while you know they’re not getting the income that they expect.”
There’s a silver lining here. It might not actually cost boards much, if anything, to give the laundry concessionaire a break, says Michael T. Reilly, an attorney at Norris McLaughlin. “One of the big aspects people forget about,” Reilly says, “is that the buildings almost exclusively pay for all the utilities – the gas, electricity and water. I mean, these are big things.” And that brings up a larger question: “Are you making any money on a laundry room? Or are you just providing an amenity?”
Jacobs, the attorney, has an answer: “This is an amenity, not a profit center.”
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