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If the washing machines in your building's laundry room are not maintained well, or worse, break down all the time, wouldn't it make sense to change vendors? You would think so, but unfortunately switching companies is not that easy.
That's because laundry room operators, who install and maintain the appliances, rely on multi-year contracts and built-in auto-renewals that can keep you locked in even when you're unhappy with your service.
The contracts supplied by laundry companies are often "fraught with pitfalls," says Eric Goidel, a senior partner at the law firm Borah, Goldstein, Altschuler, Nahins & Goidel. And not surprisingly, many laundry companies have their own in-house counsel looking out for them. Goidel recommends condo and co-op boards review the terms of the contract supplied by the laundry company and have their own lawyer prepare a new contract with better protections for residents.
Read on for what you need to look out for in your current contract.
Binding multi-year laundry contracts
The trend in NYC laundry rooms is to install smart technology—so you can use your phone to find out when machines are empty or your cycle has finished. But don't be fooled into thinking that's what makes a great laundry room.
Goidel says the priority is service and boards should be asking, "When a machine breaks down for the same reason repeatedly is there an obligation to replace the equipment?"
It's important to put an emphasis on servicing the machines since you'll be using a vendor for a long time. Because of the expense of installing new appliances, contracts with laundry operators typically have six- to eight-year terms, says Peter von Simson, CEO of New Bedford Management, a NYC real estate management firm.
Some of the contracts provide for a right of first refusal, which means the original laundry company has the right to match any competing bid when the lease term is coming to an end. In this way, they keep their own machines in place. Goidel says this can have “a chilling effect on you getting bids from a competitor because they know the existing laundry company is going to be a stalking horse on the deal," he says. Without a competing bid, it's very hard to negotiate new terms with the same vendor when the contract is already in place.
An automatic renewal clause is something to look out for. Contracts from laundry operators can often renew without the board doing anything. "These auto-renewals also require very specific timing, language, and delivery required for a laundry contract not to be renewed," says von Simson.
There might also be a clause stating that if, during the last year of the term the company installs any new laundry equipment, the contract automatically renews for another six to eight years. These are some of the ways laundry companies "control the renewal process," says Goidel.
Termination often requires multiple notifications
The contracts between buildings and laundry operators often have "very specific language as to what conditions have to be met for a contract to be terminated," says von Simson.
In most cases, the terms require specific notification of any problems as well as giving the company the right to try to correct problems with the machines or the service before a contract can be ended he says. As a result, it may take "multiple notifications for a laundry contract cancellation to be accepted by the laundry company."
Getting out of a contract
One of the workarounds to the right of first refusal clause is to find another company that is willing to bid on the job. You should then prepare an agreement or lease with that company that includes protections for residents, like striking out auto-renewals or eliminating the right of first refusal. Then, if the company exercises their right of first refusal, "they have to match the contract," says Goidel.
Goidel points out there has been a lot of "consolidation" in the laundry operator market in recent years so be careful who you reach out to as an alternative. "Sometimes you think you are getting a bid from a competitor and it's a subsidiary of a larger operator," he says.
It may be complicated but von Simson says it's "not impossible for a building to get out of the contract or not to renew the contract." What's needed is for the board, management, and building attorney to be on the same page and if the agreement is going to be canceled, "make sure proper documentation has been provided and contract requirements followed."
Then make sure your next agreement in written in a way that gives residents the control they need whether that's related to service or renewals.
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