By Edward T. Braverman

Edward T. Braverman is senior partner of Braverman & Associates, a Manhattan law firm that specializes in cooperative and condominium housing law.

You have almost completed the seventh year of a seven-year laundry room contract and this relationship is wor

This is the third time in a week that several machines in your laundry room are not working. Your managing agent has placed six calls demanding service and you have received no response. At the same time, you have been beleaguered with offers from other vendors to modernize your equipment: offers that would make a virtual "laundry Camelot" in your basement.

Will you be able to get a divorce from your current company? That might not be possible. Like a marriage, love had blinded you. Seven years ago, when you signed with your current vendor, the vision of modern shiny machines and a new paint job had so beguiled your board that a long-term contract was executed without the guidance of your counsel. And, like a marriage, when a union is conceived in haste, you repent in leisure.

A board should have a general understanding of some of the important terms and considerations to be dealt with when seeking to replace its laundry equipment. Competent corporate counsel will negotiate those terms which are necessary to protect the property and its tenant-shareholders/unit-owners. But you should understand the issues.

YOU HAVE THE RIGHT--

First Refusal. Many laundry companies insert a "right of first refusal" (sometimes called a "right to match") within the agreements. This right permits your existing company the ability to meet and match any bona fide competitive bid. Accordingly, even though your current contract is drawing to a close and you are dissatisfied with the services rendered, you may be obligated to "sign-up" with your existing company if they are ready, willing, and able to "meet and match." The courts have repeatedly held that this is a valuable and protected right. So, unlike divorce, you may not be able to sever the contractual ties that bind.

If your predecessor board was foolish enough to sign a contract with a right of first refusal, you may not be able to correct the error at this point. However, in your future negotiations you should demand that this clause be stricken. If you must sign up with a company you hate, at least it will be limited to the contractual term offered by its competitors and you will not subject your building to this future problem.

Automatic Renewal Clause. The automatic renewal clause is the first cousin to the right of first refusal. In essence, this provides that the contract shall be automatically renewed for the same period (or some lesser term) unless either party, at some stipulated and predetermined time (i.e., 60 days before expiration), gives notice by mail to the other of its desire to end the agreement.

The laundry contractors' theory behind the automatic renewal clause is based on the supposition that seven years after execution of the contract the co-op or condo will neglect to give the required notice and thereby subject itself to a renewal term of some predetermined length. If an automatic renewal clause were enforceable, the building would find itself bound to an extended term with old and failing equipment and a laundry room in need of refurbishment.

Happily, unlike the right of first refusal, the New York State Legislature has legislated against this inequity. The New York General Obligations Law clearly requires that if a contract to provide service, maintenance, or repair, contains an automatic renewal provision, the vendor must give not less than 15 days' and not more than 30 days' prior notice, by certified mail, that the contract contains such a provision. Failure to give notice vitiates the clause.

If you receive such a notice from your erstwhile laundry company, all the better: you will promptly cancel the automatic renewal, save your building from additional years of inept service and failing equipment, and have your attorney negotiate a proper and acceptable contract with a vendor whose reputation you admire.

Replacing Equipment. If the automatic renewal clause is the first cousin of the right of first refusal, the replacement equipment option is a second cousin. Although somewhat less onerous than its two relatives, this provision stipulates that the vendor can extend and renew the entire agreement for a specified term if he replaces the washers and dryers before his contract expires.

Unfortunately, this clause does not usually guarantee you get new machines or a rehabilitated laundry room. The exercise of this option by the vendor certainly does not correct poor attitude and lack of good service. In effect, your building may find itself subject to an extended term with replacement, but still failing equipment taken from another building, and a servicer who leaves much to be desired. Accordingly, the replacement equipment option should be avoided.

PUTTIN IT IN.

Equipment. The brochures and "puff sheets" you receive from a vendor invariably promise installation of the "latest model equipment" with "state of the art" amenities. Sounds good, but is there something hidden here? You bet. Make sure that your contract specifies that the equipment is new and not someone else's defective units that have been "reconditioned." It is also important to clearly specify the model and capacity of each of the units so that your tenants will not be disappointed and not required to spend an inordinate amount of time in the laundry room doing multiple loads at multiple fees.

The Installation. While most laundry room agreements provide that the co-op or condo will supply electricity, heat, gas and water, care should be taken in specifying that all electrical, plumbing, and duct work be performed by the vendor at its sole cost and expense, and that these installations will not be removed from the building nor disturbed at the end of the term.

Special care should be taken to stipulate that dryers will be vented to the outside to avoid build-up of heat and moisture within the laundry room. Moreover, the contractor must agree that he will comply with all codes, rules, and regulations concerning the operation of the laundry room and its equipment. The vendor must be required to obtain all necessary permits and/or licenses.

The installation is to be undertaken only by those parties licensed to perform the trade in question (i.e., electrician, plumber). It should also be stipulated that all required permits be obtained at the expense of the vendor, and that if any violations are issued during installation or operation, those will be corrected by --- and any costs, fines, or penalties will be paid by --- the vendor.

Indemnification. As part of the installation process, as well as the continued operation of the equipment, your vendor should accept full responsibility for the equipment and its operation. Accordingly, your vendor should agree to indemnify the building, its tenants, and the manager from any loss or damage which may be sustained as a result of the installation and/or use or operation of the equipment. This protection should be "backed up" with appropriate amounts of liability insurance.

When the vendor tenders his insurance documentation, special care should be taken that the building and its managing agent are named as additional insureds and not merely named as certificate holder. This will afford the building and/or its managing agent the needed insurance protection when claims are made against them.

The certificate should be examined carefully to assure adequate amounts of coverage for the specific location. Coverage should not be shared with any other locations serviced by the vendor. The carrier should berated highly and licensed to do business within your state.

CARE AND FEEDING.

General Maintenance. It is standard practice for the building's personnel to keep the laundry room clean and free of debris every day. However, the vendor should agree to "reasonably" maintain the painted walls, the floor, the lighting, and the tables and chairs. If possible, the board should negotiate with the vendor to install a security system, such as television surveillance (or panic button) within the laundry room and the basement path of travel from the elevator.

Service Guarantees. Many vendors guarantee service "within nine consecutive business hours." While this may seem eminently reasonable, watch out. This does not necessarily mean the next day, especially when a unit goes down on a Friday or before a legal holiday. Repeated failure of the same machine should also trigger a mechanism for replacement of the unit with one which, although not new, will be in good operating order and of like capacity and quality.

Meter Charges. The primary purpose of the laundry installation is to service the tenants in the building with dependable laundry facilities at a reasonable price. Accordingly, it becomes incumbent upon the board to negotiate the cost of each load, giving appropriate consideration to the size of each machine and the length of the washing and drying cycles.

These rates, once negotiated, should either remain fixed for the life of the contract or should provide stipulated increases at fixed periods of time, subject only to further increase with the written consent of the board of directors. This limit, placed on the vendor with regard to metering each loan, will protect your tenants from being gouged.

Commissions. As a secondary benefit to providing laundry facilities to the tenants, your building can secure additional funds, as a rental of license fee, payable by the vendor. This fee can be stipulated as a percentage of the revenue received a flat fee, or a combination.

Unless you are relatively certain as to the income being produced by your laundry facility, it is probably best to provide for a flat monthly rate, with an override after a stipulated amount (for example, a fixed fee of $2,500 per month, plus 60 percent of all monthly revenue exceeding $5,000).

Commission schedules or fees should be payable monthly. However, many vendors seek to pay quarterly, in arrears. Such delayed payment should be avoided to protect the building from excessive delinquencies and to assure a steady flow of revenue.

In determining schedules, arrangements should be made to verify collections and review your vendor's books and records. Most recently, some laundry vendors are using value transfer machines. These systems eliminate the need for coins through the use of a card system. Stipulated sums can be transferred by machine to a tenant's card through cash deposits or credit card transfers. This benefits your tenants by eliminating the need for coins to operate the machines and also provides a more accurate system to account for usage and payment of commission/fees.

Guaranteed Daily Revenue. Some vendors will attempt to reduce the building's commissions/fees by establishing minimum machine cycle usage per day. Since it is impossible to know how many cycles each machine will go through, this guarantee should be eliminated.

Although not as compelling during this period of full occupancy, provisions reducing a building's commission/fee, based upon an increase in the building's vacancy rate should also be avoided.

TRADING AND FIRING PLAYERS

Assignments by Vendor. Like a baseball player, your building may be traded to another laundry vendor. You may more readily fit into another vendor's collection and servicing route or else the vendor may be leaving the business and selling his accounts.

Being sold or traded can have serious effects, especially if you are traded or sold to a vendor with whom you specifically chose to avoid. You might, in fact, even be traded or sold to your previous vendor.

In New York State, failing to prohibit a party's right to assign a contract amounts to acquiescence. Accordingly, you must focus substantial attention on this issue to eliminate your vendor's right to assign your contract or to substantially limit his ability to do so. Seek to provide for your prior approval, with set standards as to the quality of the company which may ultimately service your building.

Defaults. No vendor, no matter how reputable will satisfy a building's needs 100 percent of the time. However, a mechanism should be established to provide the building with a viable way to terminate its relationship with a vendor in case of repeated defaults.

Vendors should have no reason not to accede to a contractual provision providing for a mechanism to terminate the relationship, upon notice, when failure to perform required service recurs repeatedly within a stipulated period of time (i.e., 3, 4, 6, etc. servicing defaults within a 12-month period or failing to replace individual pieces of equipment which repeatedly malfunction).

A building's ability to call a default and terminate a relationship with a vendor gives the building the power it needs to assure continued compliance with a vendor's obligations and to prevent a vendor from treating the building with the disdain which grows from a long-term contract.

Termination. When a laundry contract reaches its natural point of termination, or its stipulated term is accelerated as a result of the vendor's default, the board must make certain that is has the ability to have the existing vendor remove its equipment so as to permit the renovation of the laundry facility and the installation of new and modern equipment.

This singularly difficult feat can be accomplished by providing for a holdover fee or rent, stipulated at the multiple of the standard fee or rent (i.e., three times the standard). This increase fee or rental rate should facilitate the vendor's removal of the equipment. Although provisions can be established whereby the equipment is disconnected and stored when the lease ends, such a provision should be avoided, as it invariably leads to litigation.

WHO'S ON TOP?

Subordination. Notwithstanding the title of the agreement between the vendor and the building, most courts find that the relationship is a license not a lease. No matter what it is, a provision should be incorporated providing that the agreement between the vendor and the building be subordinate to any existing or future mortgage or ground lease. Failing that, the building may find itself in difficulty when it tries to refinance its existing mortgage and the lender insists that all leases and occupancy agreements be subordinate to its mortgage.

The agreement should also provide that the building or one of its officers be designated as the vendor's attorney-in-fact to execute any agreement of subordination should the vendor fail to do so and to give the required estoppel certificate needed for every closing.

Notices. To avoid any conflict, the agreement should clearly provide that all notices must be in writing and how and where they are to be directed and when they are deemed to have been given.

Negotiations. Remember: the laundry vendor is in business to make money. The vendor expends large sums and considerable resources to install equipment and renovate. It must then spend years servicing the machines. This investment must be amortized over the term of the contract and provide the vendor with a reasonable return. Accordingly, most laundry room contracts will provide for a five- to seven-year term.

Moreover, most vendors will balk at some of the provision which may have a direct compact on their ability to recoup the investment and to make a profit. Consequently, you will undoubtedly not be successful in securing every demand which you or your counsel will make. You must therefore be judicious in determining which contractual items are most important to the building.

If you choose wisely and establish a contract which will protect the interests of the building and its tenants, while permitting the laundry vendor to earn a reasonable return on its investment, you can establish a positive relationship, which can only be beneficial to both sides.

And that's the dirt on how to make your negotiations a win-win affair.

Reprinted with permission of Habitat magazine.

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