A client of mine recently asked me to review a proposed contract with one of those companies that install laundry equipment in your community. Now this may seem like a small task, but any attorney, or Board member for that matter, with any experience in this area knows that this contract can create havoc for generations to come if you’re not careful
What is strange about these types of contracts is that you will notice that even though the company is giving you equipment and you are paying a fee each month, the condo association is actually the lessor and the laundry company is actually the lessee. This is because the contract is drafted so that the association is leasing the physical laundry rooms to the company and a landlord/tenant relationship is therefore formed.
The contract leads you to believe that you have the right to terminate the contract after the first term of whatever amount of years were agreed to. The problem is, a subsequent paragraph later on usually and immediately takes that right away with additional language that says if at any time a majority of the equipment is replaced, with or without the association’s permission, the then current lease term shall be extended by another amount of years automatically.
What this means is that in the final day of the contract, if the laundry company replaces 51% of the machines, you are locked in for another multi year term, even if you hate the relationship and want out of the contract. And what do you think the company will do in the final month or year?
About twenty years ago, a new client came to me after signing one of these contracts. They were already locked in for many years and did not want to renew. The laundry company argued that they recently replaced more than half the machines so the contract starts anew. We went to court. I argued to the court that this is actually a contract in perpetuity and that contracts in perpetuity are disfavored under the law. The laundry company can lock the association in forever, simply by always replacing a majority of the machines at the last minute. The judge asked me “Did the condo have an attorney look at the contract before they signed it?” I said “No.” She said “Well they should have. Judgment for the laundry company.”
If that were not enough, the contract normally grants the laundry company a right of first refusal to meet the terms of any offer the association may get from another laundry company should the existing contract actually ever come to an end. Again, this is despite the fact that you may not have had a good experience with them and want to break the relationship.
So associations be careful. If you’re not careful, with the stroke of a pen you may have just rented your laundry rooms to a company that will be washing your great grand-children’s clothes.