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Monday, November 14, 2005

Playing Dirty with Laundry Room Contracts

130pxnew_york_state_flag For a company that leases and provides laundry room services to apartment buildings, this is apparently a common business strategy:  in the middle of the “miscellaneous” section of the contract, retain a “right of first refusal” to match any offer made by a competing company, and retain the indefinite right to remain in the building past the expiration of the lease, until presented with the right to match the competitor’s offer.  Based on such a clause, Coinmach, a North Carolina laundry room company, refused to vacate the premises of a Manhattan apartment building after its lease expired, until it was given the right to match a competitor’s bid for a new lease. 

A New York trial court invalidated the clause and, recently, an intermediate appellate court affirmed.  The appellate court held that “permitting defendant such a temporally unrestricted right would constitute an unreasonable restraint upon the alienation of property, and is not justifiable by reference to some salutary underlying purpose, for none is evident.”  (internal citations omitted).  The court “perceive[d] no beneficial purpose to be served by effectively requiring [the residential apartment building] to retain defendant's laundry room services indefinitely, regardless of their quality.”

A lawyer, and chairman of the Council of New York Cooperatives and Condominiums, told the N.Y. Times that this “right of first refusal” clause was commonly used in Coinmach’s contracts.  He said that he routinely eliminated the clause when negotiating a contract with Coinmach, and Coinmach rarely objected.  However, most buildings do not have counsel review these types contracts, which seem straightforward and simple.  As a result, many buildings entered into Coinmach contracts with this clause – and once the contract was executed, Coinmach had not been as willing remove the clause.  In all events, after the recent decision invalidating the clause, buildings will be “free to negotiate” with other laundry companies.

[Meredith R. Miller]

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