THE LAUNDRY ROOM LEASE: A MAGNET FOR
A friend tells
you that he recently purchased an apartment building and was told by the
laundry room operator that the operator is not going anywhere until the year
room leases, after initially providing for a five year term, will, a few
paragraphs later, provide that the lease may be extended for two successive
periods of five years each. The lease
will likely state that the options will be exercised "automatically"
unless the lessee provides notice not to extend. The lease may also provide that the lessor
may terminate the lease only by written notice provided 90 days prior to the
end of the "second extended term."
In other words, the owner of the apartment building may not be able to
terminate the lease by notice before the lapse of approximately 15 years under
In the area of residential
real property, California Civil Code §1945.5 provides in part that:
renewal or extension of the lease for all or a part of the full term of the
lease if the lessee remains in possession after the expiration of the lease or
fails to give notice of his intent not to renew or extend before the expiration
of the lease shall be voidable by the party who did not prepare the lease
unless such renewal or extension provision appears in at least 8-point
boldfaced type, if the contract is printed, in the body of the lease agreement
and the recital of the fact that such a provision is contained in the body of
the agreement appears in at least 8-point boldfaced type, if the contract is
printed, immediately prior to the place where the lessee executes the
agreement, any waiver of the provisions of this Section is void as against
apartment building generally involves residential real property, a laundry room
filled with coin operated washers and dryers would seem to constitute a
commercial enterprise, and thus exempt from such code section. My research has not revealed a written
judicial opinion determining whether the requirements of California Civil
Code §1945.5 apply to a laundry room lease.
It is, however, probably only a matter of time before a heated legal
battle between a building owner and a laundry room operator results in an
appellate decision that will settle this issue in California. Other jurisdictions may have similar statutes
which may have been interpreted or which may remain uninterpreted as in
There was a time
when little attention was paid to the content of a laundry room lease. Apartment building owners are, however,
becoming increasingly aware of the content and consequences of a long term
laundry room lease. As a result,
building owners are consulting with attorneys more frequently regarding these
apartment building owners are advising their clients to consider the following
issues in their discussions with laundry room operators:
1. Limit the lease term to one, two or three years.
2. Delete any automatic renewal clause, so that only a month-to-month
tenancy will exist after the expiration of the initial term.
3. Specify the quality of the equipment to be installed, e.g.,
new or used equipment, and perhaps brand of equipment.
4. If the lease provides that following termination, the lessee
nonetheless has the right of first refusal to meet any bona fide offer to lease
the premises submitted by another company, on the same terms as the other
company's offer, insist that the provision be deleted.
5. Review the nature of any public liability insurance required under
6. Do not permit the laundry room lease to be recorded. If a dispute arises between a building owner
and the laundry room operator, a recorded lease will serve as a cloud upon
title and make more difficult the building owner's effort to limit or remove
the effect of the lease.
As a laundry
room operator, how would you respond to these concerns of an apartment building
owner? Before you contact that next big,
potential apartment building customer, you may wish to reflect upon these
questions with your own legal advisor. A
hesitant, ambiguous response to a question considered important to the building
owner may lose the customer!
Assume you are
operating under an existing laundry room lease.
How would you respond as a laundry room operator if a new owner of the
apartment building requests you to remove your coin operated washers and dryers
and vacate so that the new owner can install and operate his own equipment, or
enter into a lease with your biggest competitor? Most operators would tell him that the equipment
isn’t going anywhere and provide him with a copy of the existing lease entered
into with the previous owner of the building.
You can anticipate his retort
that he never signed the lease or any document assuming the lease, and did not
know of its existence. He will likely
also point out that the laundry room lease was not recorded. Accordingly, he will presumably advise you
that he is not bound by the terms of any such lease or contract and that you
remain on the premises as a month-to-month tenant. Assume he then hands you a thirty day notice
of termination of the lease.
So how might a
laundry room operator respond?
Civil Code §1214 provides in part that:
"Every conveyance of real property . . . is void as against any
subsequent purchaser . . . in good faith. . . ." A laundry room lease is a conveyance of real
property. In order to be a good faith,
innocent or bona fide purchaser of property, however, so as not to be subject
to such a laundry room lease, one must be innocent of any notice of the
existence of the laundry room operator.
laundry room operator has maintained the proper signage, an operator might
advise the new owner that he has such notice because signs upon the equipment
or upon the walls in the laundry room give notice of the name and address of
the laundry room operator. The operator
might further advise the new owner that he had an affirmative obligation to
inspect the premises, including the laundry room, to determine the presence of
anyone outside the chain of title.
In purchasing an
apartment building, income from the laundry room can generally be found in the
broker's listing for the property.
Income schedules available for inspection by prospective purchasers and
their lenders normally include laundry room income. Such information provides further notice of
the existence of a laundry room lease.
The fact that
the laundry room lease is unrecorded will not be of assistance to the new owner
if he otherwise had notice of the existence of the laundry room lease. California Civil Code §1217 provides
"An unrecorded instrument is valid as between the parties thereto and
those who have notice thereof."
Court of Appeal advises that,
lease is not void as against a purchaser who has notice of the lease or such
notice as should put him on inquiry as would disclose its existence. . . . The rationale of this rule is that a
purchaser of premises occupied in part by a third person under an unrecorded
lease cannot be said to be an innocent purchaser since possession by such third
party may constitute notice to the purchaser, provided it is open, notorious, exclusive
and visible, and not consistent with the record title. . . ."
It has also been
held that "the purchaser is under a duty to make inquiry of [the]
strangers' rights, and failure to do so deprives him of the status of bona fide
The moral of the
story? Each situation of this type
involves a different set of facts. The
message here? Proceed cautiously with
knowledgeable advisors in your corner!
[This column is intended to provide general information only and
is not intended to provide specific legal advice; if you have a
specific question regarding the law, you should contact an
attorney of your choice. Suggestions for topics to be discussed
in this column are welcome.]
Reprinted from The Journal
Myles M. Mattenson © 2006