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Laundry Leases: Breach of Contract by “WASH” Laundry Company? By – Dale Alberstone, Esq.

Posted on 01. Feb, 2019 by in all

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Hello everybody.  Some 31 years ago in the August 1988 issue of AOA’s magazine, I published my first of what would become many articles concerning problems inherent in laundry leases which were prepared by laundry companies and given to apartment owners to sign.

Those problems included unreasonably long lease durations (sometimes 10 years!), oppressive automatic renewals of those leases (sometimes for an additional 20 years!!), and unacceptable legalese allowing the laundry company to record the lease (thereby clouding the owner’s record title!!!), among others.

Over the past seven months or so, a new problem has arisen, but this time by a prominent laundry company having machines throughout much of California as well as in other states and Canada.  That company, “WASH Multifamily Laundry Systems, LLC” (“WASH”), has 70,000 locations with 31 branch offices, according to its website. WASH was formerly known as Web Service Company, Inc.

During those seven months, I have received numerous telephone calls from AOA members complaining about two new charges that WASH unilaterally imposed on them.  Specifically, the complaints are that the charges reduce the percentage commission revenue (i.e., rent) that WASHis required to pay them under their leases.  Some members have been so upset about the charges that they have told me that someone should file a class action lawsuit againstWASH for a refund on behalf of all owners.

Before commenting on WASH’s new charges, let me remind AOA members of this very important point:  under a typical laundry lease, the laundry company is a tenant who rents a laundry room in the owner’s apartment building.  The company’s landlord is the owner of the building.  In other words, the owner is the lessor and the laundry company is the lessee.  Have you ever heard of a tenant serving notice to unilaterally reduce his, her or its rent?  Never!

WASH’s Questionable Charges

WASH identifies its two types of new charges as a “TSRE” fee and an “Adjustments” charge. WASH’s imposition of the Adjustments charge predated the TSRE Program charges by a number of months.

“TSRE” is WASH’s acronym for “technology, service and revenue expansion.”  WASH explains its assessment of that fee (under which WASH unilaterally deducts 6% from the gross revenue generated by each washer and dryer before calculating the percentage rent commission disbursement to its landlord) is necessary for it to grow its technology infrastructure so as to (1) “enable coinless transactions,” (2) to “continue to provide overall superior service,” and (3) to provide “new and exciting improvements” to owners and their tenants.  (In my opinion,WASH should self-fund all of that and not have its customers pay for it.)

WASH’s “Adjustments” charge, as I understand it after interviewing employees in their company, is an additional reduction from the percentage commission otherwise payable to the landlord when residents pay for their washes and dries by electronic means (such as with a credit card, debit card or through an “App”), rather than by quarters.  The Adjustments are imposed on the landlord if the machines are operated without coins being inserted into them. Those Adjustment charges may be as high as 4 or 5 % of the percentage commission, if not more.  (There might be other minor Adjustment charges which would be appropriate, such as refunding money to a tenant if a machine malfunctions during a wash or dry cycle.)

Thus, if tenants pay electronically with an App, credit card or debit card, rather than with quarters, WASH’s Adjustments may reduce its landlord’s percentage commission (i.e., rent) by an additional 4 or 5%.

Added together, WASH’s total deduction for TSRE fees and Adjustments may be 10% or even 11% of the percentage rent specified in its laundry leases!

WASH justifies its new charges, and what it explains is a “necessary fee increase,” by claiming, among other things, that the revenue the owner receives will ultimately be greater than the revenue the owner would have received had WASH not made the improvements, and by claiming that WASH’s fee increase will help owners “attract and retain residents for years to come.”  The accuracy of those contentions is questionable.  Wash explains that it wants to make “coin payment a thing of the past.”  Of course, if that occurs, it seems probable that WASH will save enormous amounts of money on its labor costs as it will no longer have to pay hundreds (perhaps thousands) of employees to drive around collecting quarters out of its laundry equipment and then transport heavy bags of cash back to WASH’s offices or other appropriate facilities.

Legal Analysis of WASH’s Charges

As an attorney, my focus is not on whether it would be prudent for a landlord to accept reduced revenue now in hopes of later receiving higher income or receiving any ofWASH’s other claimed benefits.  That is not a legal issue, but rather a business decision.

Instead, my focus is on whether WASH has the legal right to impose the percentage reductions at all.  The resolution of that issue will be determined by the terms and conditions of the lease or other rental agreement (hereafter collectively the “Lease”) entered into between the owner and WASH.

I have not read all of Wash’s various Lease forms.  However, in my opinion, unless the Lease expressly or otherwise allows WASH, as a tenant, to impose a fee on its landlord which reduces the percentage commission revenue specified in the document, WASH’s unilateral reduction of the percentage commission would likely be a breach of its contract.  Bear in mind that a Lease is a contract.

Think of it this way:  Assume that the Lease for a laundry room provides thatWASH’s rent for those premises is fixed at, say, 60% of the gross revenue generated by each washer and each dryer in the room.  That means that if the machines take in $200.00 of quarters during a given month, WASH’s rent would $120.00. WASHwould rightfully retain the remaining $80.00 as their gross profit.  But WASH, as the tenant, would not have the legal right to unilaterally reduce the percentage rent to its landlord.  In my opinion, only if the Lease allowedWASHto reduce the percentage commission payment would WASH have the right to do so.

In general, California Civil Code Section 827 allows a landlord under a month to month agreement (which is often the type of arrangement that exists after the initial term of a lease expires), to change the terms of the tenancy by delivering a 30-Day Notice to the tenant.  Such notice may increase the tenant’s rent or change the formula by which the tenant’s rent is to be determined.

But Civil Code Section 827 is not reciprocal.  It does not empower a tenant to serve a 30-Day or any other type of notice on the landlord to change the method by which the tenant’s rent is calculated.  And it certainly does not allow the tenant to serve a notice reducing its monthly rent under any lease or month to month rental agreement.

Accordingly, WASH’s right, if any, to reduce the percentage rent payments to its landlord when imposing a TSRE fee or an Adjustments charge is determined solely by reference to the terms and conditions of its specific Lease with each specific landlord.

If the Lease provides for the payment to the owner of a firm, fixed percentage of the total revenue collected, then most likely WASH would have no right to impose any TSRE fee or Adjustments charge (except, perhaps, an Adjustment related to a refund of revenue WASH made to a resident for a malfunctioning machine).

I surmise that the vast majority ofWASH’s older Leases do not allowWASHto reduce the stated fixed percentage of gross revenue payable to the landlord.  If WASH then were to do so by imposing a TSRE or Adjustments charge, that would likely be a breach of the contract.

On the other hand, I suspect thatWASH’s newest versions of their Leases provide for the imposition of those types of charges.  If so, the Wash would legally be allowed to assess those charges in accordance with the terms of the document.

Recommendations

Here is what I recommend to AOA members who object to WASH (or any other laundry company) imposing a TSRE fee or an Adjustments charge to reduce the percentage rent commission payment called for in the owner’s Lease:

1.  Evaluate:  Look at your Lease to see if it contains a provision allowing for those charges.  If you believe your Lease permits them, then check to be sure that the amount of the TSRE and Adjustment charges thatWASH or any other laundry service imposes each month are consistent with the Lease provisions.

Even if you conclude that the charges are appropriate, you may wish to confer with your own personal attorney to obtain his/her opinion of the legal propriety of the charges under your specific contract withWASHor the other company.  Interpretation of leases and rental agreements is often not as straightforward as it may appear to be to a non-lawyer.

2.  Confer With Counsel:  If you do not see such a provision in your Lease, then confer with your own attorney to obtain his/her legal opinion as to whether the charges are nevertheless allowable under your Lease, or whether WASH’s or another company’s imposition of them is a breach of  contract.  By the way, I have not heard of any other laundry company imposing such charges.

3.  Communicate, Sue, and Switch:  If you or your lawyer concludes that the charges are not allowed under your Lease, communicate with the laundry service to see if they will voluntarily eliminate them in the future and refund the past overcharges.  If they refuse to do so, consider filing an ordinary lawsuit or a class action lawsuit against the company.  Also, consider switching to a different laundry service at your earliest legal opportunity.

4.  Call and Complain:  If you conclude that the TSRE and/or Adjustments charges are a breach of your Lease, call the laundry service multiple times on different days to complain to several different persons in their staff.  Multiple calls will impress upon the company how important these issues are to you and perhaps get you a refund.  As for WASH, one person I recommend you call is its interim Chief Financial Officer is Marty Heimbigner.  His direct telephone number is (310) 725-4801.  I expect that Mr. Heimbigner would be most interested in hearing from you on this topic.  He is a very pleasant person.  If he does not answer, leave him a voicemail.  In addition to calling him, also email him at:  MHeimbigner@washlaundry.com. WASH’s general customer service number is (800) 421-6897.

5.  Clarify New Leases:  In any new Lease with any laundry company, insist that a sentence be inserted which provides that the laundry company will pay you monthly, in full, a specified commission percentage of gross revenue without offset or deduction of any kind.  If the company will not agree to that verbiage, then lease your laundry room to a different laundry service.

Concluding Comments

It marvels me that a business as successful and reputable as WASH would pass onto their customers their own infrastructure improvement expenses rather than absorb the costs themselves. WASH’s combined charges for the TSRE and Adjustments are likely to be in the neighborhood of 10 or 11% of the gross revenue they collect, thereby reducing their landlords’ percentage commission rent by the same sum.  That seems like a substantial and unacceptable amount of lost monthly rent to landlords for the lease of a laundry room.

Where WASH’s Leases provide for a firm, fixed percentage of rent calculated upon gross revenue, I would have expected that WASH would have solely absorbed and self-funded 100% of the expenses for their company-wide technological enhancements, and not force them upon its customers.

Also, AOA members might find it particularly disturbing knowing that ifWASHwere to continue to accept only quarters, there would be virtually no Adjustment charges levied against their percentage rent.  By WASH switching to a cashless system whereby residents pay with credit cards or by other electronic methods, WASH saves on labor costs (and its profits go up) while AOA members’ percentage rents of gross revenue go down some 4 or 5%.

Finally, let me conclude by saying that the opinions expressed in this article are mine alone and are not necessarily endorsed by the AOA.  I urge AOA members to confer with their own personal attorneys to determine if their own lawyers concur with my opinions.  I expect they will.

BREAKING NEWS:  2019 RESIDENT MANAGER UPDATE

In the January 2019 issue of this magazine, I estimated that during 2019 the maximum monthly rent that owners could charge resident managers who are required to live on site as a condition of employment is $621.29 if the building employs a single manager and $919.04 if a couple is employed.  At the time the article was written (December 2018), the California Department Industrial Relations (i.e., the Labor Department) had not released the actual numbers.

They have since published them.  The official amounts have now been set at $621.28 for a single manager and $919.02 for a couple. 

The same maximum amounts apply to a credit to the minimum wages earned if free or reduced rent is charged.  Thus, the official amounts that can be offset against the minimum wages earned by managers are $621.28 for a single manager and $919.02 for a couple. 

Please review my January 2019 article in AOA’s Magazine for the details and qualifications of the maximum allowable rent and the maximum offsets to minimum wages. Have a great 2019!  

Dale Alberstone is a prominent real estate attorney who has specialized in real property and resident manager law for 40+ years.  He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association.  He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.

Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell.  An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity.

The foregoing article was authored in January 2019.  It is intended as a general overview of California law only and may not apply to the reader’s particular case.  Readers are cautioned to consult an attorney of their own selection with respect to any particular situation.

Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 269 S. Beverly Drive, Suite 1670, Beverly Hills, California 90212.  Phone:  (310) 277-7300.

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