Author: Alex Miller

EXPERTS URGE EXPANDING DELIVERY SERVICES, DIVERSIFYING OFFERINGS, EMBRACING CHANGES FROM COVID ERA AMONG OTHER INSIGHTS   

Vaccines are rolling out and the economy is beginning to wake up. While the pandemic is not over—we are all turning a corner. There have been numerous resources available to the drycleaning community including the Drycleaning & Laundry Institute’s Zoom calls or webinars as a way to keep up on real-time news relating to the industry, education on new best-practices and forums to keep in touch with community members throughout the past year. While we cannot predict the future—everyone has been on pins and needles trying to figure out where the we are all going next, so I connected with some of our industry’s leaders to gain more insight into what they see for the future of our industry.

MARY SCALCO – CEO, DRYCLEANING & LAUNDRY INSTITUTE
“What’s next? That is the question everyone is looking to answer as we move into life after the pandemic. There are two schools of thought—one says business will be like the Roaring Twenties after prohibition and others say the general public will still be wary after the restrictions are lifted. I choose to believe in the first scenario and there is something to be said for ‘If you believe it, it is more likely to happen’.

I’m not saying that just because we wish everything will return to normal or pre-pandemic—but you can prepare and position your company in that regard. Yes, things will be different but one thing I learned this past year is how resilient DLI members are. Members have taken the opportunity to work on their businesses over the past year; I’m not talking about production but I’m talking about the business. Looking at their marketing, looking at their financials, and looking to where they want to be when the economy fully reopens. Some have changed their business models completely like no more retail locations and only routes, for example. Some embraced social media after shunning it for years. Some have made it more convenient for customers to do business with them, and some have added new services above and beyond wash, dry and fold.

So yes, the industry will change but that is not necessarily bad.”

JEFF SCHWEGMANN – PRESIDENT & OWNER, SUNSHINE CLEANERS COMPANY, LEATHER CARE USA & HAPPILY EVER AFTER PRESERVATION
“The drycleaning industry was already in a state of change before the pandemic—Casual workplaces, work from home, and changing styles. I see the innovators of industry quickly accepting that everything has changed, it will never be the same and they are updating their business models to reflect this. Dry cleaners have been providing home delivery long before Amazon. Companies that go to the customer and sell their value to the customer will be the success stories.

I feel that the 4th of July will be a real Independence Day this year. With the projection that all adults who want a vaccine will be eligible for one by May 1, we can see that the end of restrictions and mandates are near. The 3rd quarter should be a good one, but the office and workplace is forever changed. Some things will return to normal. However, the ease of Zoom meetings and hybrid working conditions are here to stay. Accept it and build your business model to cater to these changes.

Customers are searching for service businesses to make their lives easier. After a year of being restricted, they are looking to spend. Make your plan to grow and secure the right staff to be ready.”

Prepare for continued industry shifts with these top 10 resources for drycleaners

KYLE NESBIT – SVP BUSINESS DEVELOPMENT/COMPLIANCE, EDIT TX LLC, MEMORIES GOWN PRESERVATION & TIDE CLEANERS (HOUSTON & AUSTIN, TEXAS)
“Industry experts & the Drycleaning and Laundry Institute (DLI) can be quoted saying 30% of the drycleaners that existed pre-Covid will be closed in the next 18 months. I concur with this assumption but want to point out that I believe the ~30% that will close likely only represent ~5% of the pieces/garments that were being cleaned in 2019. The strong drycleaning companies that survive will be fighting for a bigger piece of the ever-shrinking market with a greater emphasis on:

• Decreasing the size of their real estate portfolio & lowering rent costs
• Focusing more on pickup & delivery
• Maximizing the utilization of technology
• Growing the Wash & Fold business
• Diversifying into other vertical markets
• Investment in automation to lower labor cost

Ten years from now the ‘winners’ in the retail drycleaning industry will be those that have figured out a cost-effective way to capture delivery customers.”

KERMIT ENGH – MANAGING MEMBER FOR METHODS FOR MANAGEMENT & OWNER, FASHION CLEANERS (OMAHA, NEBRASKA)
“The changes in our industry, I believe will be permanent going forward. Fewer overall pieces, ability to increase prices and get paid for our work, and fewer operators with the strong innovators surviving and thriving. The pandemic also forced the good operators to make difficult decisions and to finally do many of the things they knew they should have done long before. Convenience to our clients will be paramount through home delivery and 24-hour locker locations. The events of 2020 also taught everyone to be diversified in their service offerings, whether restoration, B2B, B2C, area rugs, or other services needed by the clients we already serve.”

JESS CULPEPPER – PRESIDENT, CULPEPPER CLEANERS (SAN ANTONIO, TEXAS)
“The drycleaning/garment care industry has seen many changes and adapted over the years. As we emerge from the effects of the Pandemic, I believe the businesses that offer their customers added convenience will see a more robust recovery. The industry has been moving in that direction for over a decade, but the pandemic has accelerated this progression. Pick-up and delivery service will continue to grow as well as the use of lockers allowing customers 24/7 accessibility. The use of technology will be the most significant tool business owners can utilize to stay competitive. Communication with your customer base through email and text as well as the integration of apps which allow your customers the ability to communicate and do business with you will all be key components as we forge ahead.”

CHRIS WHITE – EXECUTIVE DIRECTOR, AMERICA’S BEST CLEANERS
“In our discussion with America’s Best Cleaners team, we are preparing for very slow growth in Q2 and in mid Q3 we anticipate the greatest increase in growth with an optimistic view for a strong Q4. We formulate our thinking based on business travel starting to pick up, the indication from major corporations on return to the office work scheduling, and the opening of schools nationwide. These of course are all based on the continued rapid pace of vaccinations across the nation and our ability to stay the course by wearing masks and social distancing which will bring a greater sense of safety and confidence into the economy. Further consolidation of the industry will continue until Q3 and this includes drycleaning shops and some smaller equipment and supply distribution companies. We are optimistic that when Q4 rolls around the businesses that are still operating will be well-positioned to service a broader market with some diversity of services to homes through pick and delivery. We are also excited to see a re-imagined retail experience that includes more technology and convenience with kiosk and locker services.”

PETER BLAKE – EXECUTIVE DIRECTOR, SOUTH EASTERN FABRICARE ASSOCIATION, NORTHEAST FABRICARE ASSOCIATION AND MID-ATLANTIC CLEANERS
“I think the light at the end of the tunnel is getting brighter every day. I think as vaccines roll out and more and more people begin to feel comfortable traveling, attending large gatherings, and returning to the workplace—the demand for our service will continue to grow. A few of my members have expressed that it ‘was like turning on a light switch’ in mid-March as customers started to return and plants were seeing increases in volume. This is not to say there were increases over previous non-COVID years, but certainly an upward trend over the recent past. It provides hope and some confidence that people will once again be in need of our services.

We have seen a number of businesses close over the past 12 months, and also seen a number of plants consolidate and I don’t think we are done yet. There will still be more fall-out as stimulus programs come to an end and pressures on businesses grow. I think the greatest issues facing those drycleaners that are able to persevere will be: hiring and retaining employees and dealing with an unstable supply market that continues to see rising costs, lack of transportation to deliver raw materials on a global schedule, coupled with the increase in demand for things like resin and steel will make some of your supply costs continue to rise. We are seeing multiple increases in poly, hangers, and some chemicals just to highlight a few issues.

I think people who have adapted and changed over the past year—will begin to flourish. All the planning that companies have done, and all the seeds they have planted will start to grow and you will see an increase in customers—including a number of new customers that had previously been using cleaners that closed. I have tried to reassure many of our members that while they may not see immediate returns on some of their marketing investment—those efforts are seeds that will bear fruit as the country starts to reopen.

Some of the changes from the pandemic will be long lasting. I believe we will see a prolonged return of a casual workplace. There will be less formal attire and the traditional dress will be replaced with a comfort-based style. The main focus for our industry has to remain on ‘Complete Fabric Care’. Helping customers look their best in whatever they choose to wear; from casual to formal to everyday. If you wear it—we can clean it. Our Fabricare Specialists save you your most precious commodity—TIME.”

Contact us today to learn more about our environmental services for drycleaners.

AS DRYCLEANERS MOVE AWAY FROM PERC, WE WILL STILL BE DEALING WITH ITS LEGACY FOR YEARS TO COME.

BY: JEFF CARNAHAN

Taking a step back and looking at the history of drycleaning, I see a few major subdivisions of time:

1. The dangerous days when highly flammable petroleum solvents caused many fires.
2. The developing days when early generations of machines and chemical management practices caused much pollution.
3. The contemporary/future days when the industry has moved away from hazardous chemicals altogether and the environmental component of the industry has all but been eradicated.

From my perspective, we are currently in a transition period between the developing days and the contemporary/future days. Some folks are safely using their Perc machines still, as today’s process is much less prone to environmental releases than in the past. However, accidents still can happen. Envision a future day when all drycleaning solvents have become non-toxic and non-harmful to human health and the environment. Waste products will be easily and cheaply managed. Heck, maybe there won’t even be any waste products. I believe that most everyone would agree that this is the direction the fabric care industry is headed. When that day fully arrives, what will be the legacy of the developing days?

THE USE OF HAZARDOUS CHEMICALS AND DRYCLEANING INDUSTRY SHIFTS
A legacy can be defined as a gift from the past. Perhaps not always a gift that we want, but a remnant of sorts, nonetheless. A history of hazardous chemical use will leave a legacy, and in the case of drycleaning it will be left by Perc. Drycleaners are not alone in this regard. Many industries have followed similar patterns over time as their processes, raw materials, and products have evolved. During the Industrial Revolution, many manufacturing companies increased production rapidly with ever-increasing technological breakthroughs that allowed more product to be made at an even faster pace. Chemicals were used abundantly based on their effectiveness, with minimal knowledge of whether they were hazardous or not. Within this void of understanding, waste management practices were based on convenience and the impact to profitability. There was no existing regulation of these chemicals or wastes because it was not clear that it was needed. Once it did become clear, the extra efforts required impacted the business’ bottom line, and there was an immediate shift of mindset toward limiting the use of those chemicals in their operations. Public perception, too, contributed to this shift of mindset. This pattern can still be seen today (e.g. PFAS) as new industrial chemicals are created and put into production. I believe, however, that the fabric care industry’s relationship with hazardous chemicals will phase out with a bit more time.

Learn more about the history of drycleaning solvents and the evolution of the dry cleaning machine

SO, WHAT WILL PERC’S LEGACY BE? HOW WILL WE BE REMINDED OF THE DEVELOPING DAYS OF DRYCLEANING IN THE FUTURE?
Perc and Health Issues
The most prominent remnants will be the contamination issues and the unquantifiable health issues. I’d like to look at these in reverse order. Starting with health issues. There is a surplus of scientific data showing that exposure to Perc is unhealthy. I called the health effects unquantifiable mostly to capture the fact that the most serious are not evident for real-time observation. The primary short-term (acute) symptoms of adverse health effects to Perc exposure are skin reactions from direct contact, and headaches, dizziness, or breathing issues from inhalation of fumes. Some people will have all of these symptoms, and some people won’t feel a single thing out of the ordinary. That makes these acute symptoms seem unreliable for a definitive ruling on the unhealthy nature of Perc.

What is reliable are the long-term study results related to the occurrence of cancer among those who have been exposed to Perc for a defined period. These results show that prolonged exposure to Perc via direct contact, ingestion, or inhalation routes increases an individual’s lifetime risk of getting cancer. That is quantifiable and scientifically derived. There becomes ambiguity and uncertainty around this fact for some due to the high number of other chemicals that people encounter on a daily basis, which also have been found to incrementally increase the chances of getting cancer. In my experience, the doctor doesn’t say, “You have cancer because of exposure to Perc,” they only say, “You have cancer.” Because of this, the legacy of adverse health effects that Perc leaves us is presently difficult to comprehend. Perhaps that will change in the future as medicine advances.

Perc and Environmentally Contaminated Properties
The second, and definitely more tangible, legacy that Perc leaves behind is a great number of contaminated properties. Many have been, or are being, cleaned up to a satisfactory extent every day. However, there are just as many that have not been recognized yet as being impacted by Perc operations. As we’ve discussed before, there are a certain number of business and property-related transactions that may reveal a contamination issue. Examples would be a Phase I Environmental Site Assessment during the buying or selling of a property, a loan refinancing, or the buying or selling of a business. If none of these are undertaken during the post-Perc life of a property, contamination issues may go unnoticed.

Find out what you should do if an environmental investigation has been requested

If not actively addressed during a cleanup action, Perc can remain in the ground indefinitely. It is referred to as a recalcitrant chemical compound because it does not significantly break down under typical, naturally occurring subsurface conditions. A recalcitrant person is willful, unruly, and uncooperative. The same can certainly be said about Perc contamination. If left unidentified and unaddressed, properties that are impacted by Perc could be environmental problems well into the future. We frequently run across former industrial properties that have been abandoned and fallow for decades. They only come to light when property taxes cease to be paid; usually due to former owners passing away, or their businesses going bankrupt and being dissolved. When taxes stop being paid, municipal entities start paying attention and may take a series of actions designed to get the ownership transferred to a new owner or business that will return it to active life. Those actions typically involve a Phase I and Phase II, and that’s when the Perc contamination gets found. Once Perc is identified in these scenarios, one of two things typically happens:

1. Public money is used to clean up the property enough for reuse; or
2. The property continues to sit idle for a very long time because nobody wants to get involved in a contaminated deal.

During milestone events in any given industry that result in the loss of business for some operators, most recently the COVID-19 Pandemic, these already strapped business owners may choose to keep potential contamination issues undiscovered. This is understandable. I’ve seen a lot of conversations related to how the Pandemic will result in the tragic loss of many small businesses. What I have not seen is the related discussion regarding how the Pandemic could lead to a dramatic increase in the number of orphaned, contaminated commercial properties. If you focus on those that are historical drycleaner properties, you will see the legacy of Perc.

Contact us today to find out how you can protect your property from becoming part of perc’s legacy

As seen in Cleaner & Launderer

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Jeff Carnahan, President
Jeff Carnahan, LPG, has 24+ years of environmental consulting and remediation experience. His technical expertise focuses on the investigation and interpretation of subsurface releases of hazardous substances for the purpose of evaluating and controlling the risk and cost implications. He has been a partner of the drycleaning industry for the past decade and is a frequent contributor to the national drycleaning publication Cleaner & Launderer. He is an industry leader in understanding that environmental risk includes not only cleanup costs, but also known and unknown third-party liability.

LEGAL AND ENVIRONMENTAL EXPERTS GIVE TIPS ON HOW TO NEGOTIATE RENT RELIEF FOLLOWING COVID-19 DRIVEN ECONOMIC DOWNTURN  

The COVID-19 virus has claimed hundreds of thousands of lives and slowed the economy to a crawl over the past year. These continuing conditions are forcing small business owners to cut back on overhead and figure out how to operate with less revenue. One way drycleaners across the country have been able to save money is by negotiating rent relief with their landlords. It’s a tried-and-true method that has the potential to work for both sides by giving the tenant financial relief on their monthly books and reassuring the landlord that their commercial property will remain active. 

EnviroForensics recently discussed this topic at length in a webinar with Davis|Keulthau Attorneys at Law and PolicyFind. At the end of the presentation, the panelists took questions from drycleaners about their unique circumstances and provided possible resolutions to their leasing situations. Read on to hear their answers.      

Get instant access to the recording of the webinar: How to Terminate or Renegotiate Leases for Dry Cleaners. 

This Q&A session has been lightly edited for clarity.

QUESTION: ARE THERE DIFFERENT CONSIDERATIONS IF YOU SIGNED YOUR LEASE AS A DBA OR AS AN LLC?
ETHAN GEIS: Having a corporate or a company structure as the actual tenant of a lease is going to provide a liability shield. There are potential ways in which parties making claims – whether that’s landlords or a third party – can attempt to enforce liability against the principles behind a company. But the company structure and the corporate structure will provide a failsafe liability shield between the personal assets of the individuals who own the company and the actual company itself. So, that may be a potential consideration if times are a bit tough and there’s a question of whether a lease is going to be terminated due to economic circumstances or whether a tenant was willing to allow it to be terminated because there’s no personal guarantee associated with the lease. Anything that would have to be recovered would be recovered through the company or the corporation. Again, that might be a drastic measure to take and a reason to do so, but that liability shield is legitimate and anyone trying to bypass it has a high burden of proof.  

ANDREW SKWIEWARSKI: If you are conducting business as a “dba” but you sign with your personal name “doing business as” there is functionally no difference between that and signing on your own, correct?  

GEIS: That is correct unless you later signed it over to an actual corporation or company. If it’s a “dba” that is simply a name that you are operating to the public with, but you are personally liable. 

Q: HAVE ANY BUSINESSES (I.E. RETAILERS OR DRYCLEANERS) BEEN SUCCESSFUL AT PURSUING THE FRUSTRATION OF PURPOSE DOCTRINE?
GEIS: I have seen a couple. Historically the answer is yes. I’ve seen some cases stemming from World War II. I do not know necessarily about drycleaners, but retail tenants who under certain restrictions that were put in place under emergency wartime powers in which those governmental restrictions defeated the essential purpose of the lease, tenants were able to terminate their lease successfully to modify their rent obligation. Anecdotally, I have heard of successful cases in which folks are trying to reduce the amount of rent, but terminating the lease based on the economic effects or the governmental restrictions have been difficult to prove on the tenant’s behalf especially if there are alternative pathways for tenants to derive revenue. For example, for a drycleaner, if they can deliver services, even if folks cannot come to the premises, that may still be a window of revenue sourcing that will not defeat the total and essential purpose of the lease contract. I think landlords have the upper hand based on the way the leases are drafted with the force majeure provisions that are in there, but with respect to the tenant, if you are making moderate and reasonable concessions, those have been successful, and if the landlord is being obtuse and not working with you on this, it certainly does not help them if this is taken to court. I have seen a lot of folks be successful when asking for a reasonable rent reduction.  

Q: HAVE YOU SEEN ANY SUCCESS IN RECOVERING MONEY FROM INSURANCE DUE TO A LOSS OF BUSINESS FROM COVID-19? 
GEIS: Up to this point, business interruption insurance litigation has been unsuccessful. There is a federal case down in Florida in which a tenant was successful. What has caused a problem is most courts are reading that there needs to be a physical loss that has actually incurred at the premises before business insurance is provided. There are legislative efforts that are underway in certain states to attempt to expand how the policy is read. That in and of itself is going to have issues as to whether states must retroactively change the contracts between parties. A lot of this litigation is going to go unsettled for years. The point to take away is this: Make the claim. If you have that policy and the stars align, you get approval of the claim. If you receive the denial, it might be time to seek legal advice to figure out whether it is worth pursuing. So just to reiterate, there has been limited success, but it certainly has not been unheard of. 

TED WARPINSKI: I recently talked to an expert that I work with in some cases and who has testified regarding some of these business interruption cases, and there are some good arguments out there with a little bit of traction. This gives a party some leverage with regards to their carrier as they have some risk and oftentimes can lead to a compromise of a claim, which is still better than nothing. If you have business interruption insurance, a claim should be made, and then react to whatever the carrier does in response.  

Q: DO NEW TENANTS TYPICALLY WANT TO TEST THEIR NEW LOCATIONS TO VERIFY THERE ARE NO ENVIRONMENTAL CONTAMINATION ISSUES?
ROB HOVERMAN: In general practice, I have not seen a lot of new tenants test a new space. However, I see a lot of those same tenants say after the fact that they had wished they had done so. We see it a lot in states that have prospective purchaser protections in place. In terms of environmental due diligence to protect yourself from potential contamination caused by somebody else, it’s a good idea. Doing a Phase I Environmental Site Assessment (ESA) transaction screen to meet All Appropriate Inquiry (AAI) requirements sets you up to understand who may have been there in the past, and then if you identify someone, such as a drycleaner or another user of chemicals of concern, testing may be appropriate. At which point you will have some legal protections in place if you did not contribute anything further that may be discovered at that point.

SKWIEWARSKI: It is very dependent on whether you’re buying, leasing, intending on continuing to operate as a drycleaner, etc. It is potentially “poking the hornets’ nest”. You want to know if you’re going to stick around for the hornets to come flying around. That often drives the decision to do testing. That said, deciding to do testing gives you an opportunity to negotiate with the landlord. You get EnviroForensics or some other environmental consultant to come in and do a Phase I ESA, and you realize there is potential that the site could have contamination on it, you can now say to the landlord, “I’m still interested in taking the space. However, we need to add a clause in here that if at some point in time, contamination is detected, I’m not on the hook for it”. Those clauses can be enforceable, so long as you are not the owner of the property. 

Before you do your due diligence, learn what to expect during a Phase I and Phase II Environmental Site Assessment 

Q: IF I LEASED A DRYCLEANER LOCATION AFTER SOMEONE ELSE OPERATED A DRYCLEANING BUSINESS THERE, CAN YOU TELL IF ENVIRONMENTAL CONTAMINATION IS FROM ME OR A PREVIOUS OPERATOR?
HOVERMAN: I think any time you are trying to pinpoint the timing of a release it becomes very difficult. The science on that is very nuanced, and often leads to very long and expensive legal battles. I would say that’s a very difficult motion to pursue. 

SKWIEWARSKI: Are there markers in the environment that can at least give an indication as to whether the contamination is likely to be young or old without being able to be precise, but at least be able to give an indication? 

HOVERMAN: Sure. Certainly, if we’re talking about perc at a drycleaner and you have testing that comes back, and there’s only perc found in the environment that might suggest you have a newer release. Whereas if you have perc plus several of the breakdown contaminants, that might indicate an older release. It does get complicated, but that is certainly an initial marker to go with. 

WARPINSKI: There are some things in terms of the nature of the regulation that have been in place with regards to handling hazardous materials has changed over time. So, it is more likely that earlier operators would have been contributors to contamination, and there’s also how long it takes to move through the environment. Oftentimes when you are making an insurance claim, you must pinpoint, or at least make an approximation of when the contamination occurred during the policy period. Oftentimes that entails an analysis of how long it took for contamination to travel from Point A to Point B, and that can also help identify when the releases likely occurred.  

Q: IF I’M CONSIDERING GETTING OUT OF MY LEASE, WHAT DO I NEED TO DO TO SEE IF I HAVE AN ENVIRONMENTAL PROBLEM?
HOVERMAN: Some initial testing can provide quick indicators whether there is the potential for a larger release. A quick soil sample and perhaps a sub-slab or soil gas vapor sampling will give you those quick inexpensive indicators whether there is a problem.  

DRU SHIELDS: Also, if you are considering exploring the potential of environmental contamination, investigate the possibility of whether you have insurance, or if an owner or operator before you had insurance to help offset costs should contamination be found.  

SKWIEWARSKI: Are there legal reasons why you might not want to test as you’re exiting your lease? 

WARPINSKI: Yes. Once you know you have contamination at your location there is an affirmative duty to give notice to the government, and the failure to do that could create even more problems for you. Before you look, we recommend looking for the insurance because if you do find something you would like to know that you have a potential source of recovery. Once you do give notice to the state or federal government, they send you a letter back saying, “Okay. Thank you for the notice. Now you are responsible”. That letter of responsibility is basically the equivalent of a lawsuit that is being filed against you for purposes of insurance. You take that letter to the insurance company, and they now have an obligation to step in and defend you from that investigation, and to indemnify you. That is the driver behind why you want to look for old insurance. The letter from the state telling you to clean up is the equivalent of being sued, and you want to be defended from that suit by your insurance company. There are reasons you may not want to look because you may find something that creates an affirmative duty. On the flipside, if you are going to do that you may want to talk a lawyer about trying to protect that information as much as possible beforehand.  

Learn how EnviroForensics and PolicyFind can help you find old insurance policies to cover environmental investigation and remediation costs. 

Q: I’M CURRENTLY BEHIND ON RENT. IF AND WHEN I CATCH UP WITH THE PAYMENTS AT/OR BEFORE THE TIME TO NOTIFY THE LANDLORD OF MY INTENTION TO EXERCISE MY OPTION TO RENEW THE LEASE, IS THE LANDLORD OBLIGATED TO RENEW, OR CAN HE REFUSE DUE TO THE LEASE HAVING BEEN IN DEFAULT PREVIOUSLY DUE TO COVID-19? 
GEIS: The answer’s going to be based first on what the contract says. It would be very atypical if you’ve caught up on your rent payment for you to be unable to exercise a tenant option to extend. The thing to watch out for is if you’re currently in default, and if you haven’t yet caught up on rent payments, there’s normally a provision in lease contracts for an option to extend that the landlord does not have to accept it if either A) you’re in default currently or B) if there’s an action or an event that has occurred but for the passage of time under the default provisions or the notice provisions that would cause the tenant to be in default. For example, your payment is due on the 15th and you haven’t paid and it’s the 5th. The landlord could choose not to accept an option to extend even if you’re technically not in default at that time if you haven’t paid, and it’s just a matter of time before it takes under the notice provisions for the breach of contract to become a default. So, the short answer is if you get caught up on your payments, I think it’s very unlikely that you wouldn’t be able to exercise your option to extend just because of a prior default. There’s a lot of “no waiver” language in leases, but if you’re caught up and there’s no current default and there’s nothing but for the passage of time would create a default, you’ll likely be able to exercise that option to extend with the caveat that your actual lease contract the provisions within it will control. 

SKWIEWARSKI: Could they ask as part of the renewal whether they could renew, but also clear all previous defaults as part of the renewal process, so they’re starting over, and they don’t have that hanging over their head? 

GEIS: Sure, you could certainly make that request. I think it would be atypical for a landlord to attempt to grant some sort of a stop or a waiver at that time, or at least if I was a landlord’s counsel, I wouldn’t let them do that. There’s certainly no harm in asking for that or putting that into an amendment for the lease that both parties represent stating that there are no current defaults. You can slip that in as a tenant regarding an amendment that confirms an option to extend a lease term. You could put that in the “boilerplate” provisions that both parties are representing there are no current defaults and that would bind the landlord. So, there are ways to potentially try that. 

Q: IS THERE A WAY TO RESEARCH AND FIND COMPETITIVE MARKET RATES IN MY AREA FOR COMMERCIAL LEASES?
GEIS: There are certain online portals that you will find on brokerage sites that will list those types of rates and there are certain research and study reports that a lot of industry associations like NAIOP (National Association for Industrial Office Parks) or Commercial Association of Realtors put together. Your best bet would be to talk to a local commercial broker to see what’s market and maybe get a couple opinions on that. Make sure you are not signing up for anything that you don’t want or that you don’t enter a brokerage relationship regarding the property. Make sure you’re asking for advice and some analysis of those market rates. There probably are some resources on some trade organization or some industry organizations for brokerages that you might be able to find online. How timely those reports might be, I’m not sure. But I think your best bet is to talk to a broker in the area and make sure you’re not signing up for brokerage services or entering a commission agreement by accident. 

Q: MY LANDLORD HAS ALLOWED ME TO PAY A REDUCED RENT FOR A FEW MONTHS BUT NO AGREEMENT WAS SIGNED OR DRAFTED. HOW CAN I MAKE SURE THEY DON’T ASK FOR THE FULL RENT FROM THOSE MONTHS LATER ON?
GEIS: The question is whether the party’s conduct has changed the terms of the agreement. It’s what we call “a novation of the contract”. A lot of times you’ll see language in the lease that says, “This contract cannot be amended except in writing”. That provision is not really an enforceable provision because you can’t bind conduct, and if you enter an oral amendment of your lease, by conduct or by verbal communication, you can’t amend that lease agreement. It’s somewhat of a phantom provision. I’m not sure what you can do to make your landlord not go back on their word other than create a paper trail, send correspondence, and then attempt to get an amendment that reiterates the amendment or the novation to that lease contract that you’ve been going about by your conduct. 

SKWIEWARSKI: You can do it one of two ways. You can deal with it straight on; send your landlord an email and say, “Hey! I wanted to confirm that we had an agreement that I was going to pay a reduced rent and I’m not going to have to pay that in the future”. Alternatively, if you want to take a slightly different tact, you can wait until you get to the point where you are going to be paying full rent again, and send the email saying, “Hey! I’m going to start paying full rent, and I just want to make sure that once I start paying full rent that I’m all caught up and that everything is good”.  

Q: OUR PLANT’S LEASE IS UP FOR RENEWAL. I DON’T WANT ANOTHER FIVE-YEAR AGREEMENT DUE TO OUR REVENUES BEING DOWN. WE’RE CURRENTLY ABLE TO PAY MONTH–TO–MONTH. WHAT DO YOU SUGGEST WE DO WHEN WE SIT DOWN WITH OUR LANDLORD TO DISCUSS OUR LEASE AGREEMENT?
GEIS: It depends on when the renewal is. If you don’t have the capacity to continue making payments pursuant to an option to extend and you don’t think the revenues are going pick back up, I think going on a month-to-month basis may potentially be an avenue to pursue assuming that you’re comfortable with being forced to leave sometime within 30 to 60 days depending on the holdover provisions and the surrender of the premise’s provisions written in the lease. If you don’t have the capacity to pay long-term, I think a month-to-month tenancy may be appropriate. The thing to look for in your lease is holdover provisions. If you’re not able to get out by the time in which the month-to-month tenancy ends or expires, you will see a lot of holdover provisions in leases that say that the rent is going to go up to 150% of the rent or 200% of the rent as a holdover rate. You must analyze whether you’ll be able to get out in a month and remove all the assets and remove all the fixtures and cure any damages caused by removal of those fixtures because that’s probably part in parcel of your lease agreement. If you’re able to do that, having the flexibility to leave on a month-to-month can be beneficial. There are other considerations than just the rent and particularly how you turn over the premises and probably the environmental concerns as to whether you’re going to be able to remediate any issues on a month-to-month basis. 

Q: ANY ADVICE ON HOW TO HANDLE PERSONAL GUARANTEES WITHIN TRIPLE-NET LEASES?
GEIS: I don’t know if I would take a different tact regarding a gross lease versus a triple-net lease just because the proposed guarantees in the triple-net lease will cover all charges whether that’s base rent or a net cost or some other charge within the lease. That said, from a negotiation standpoint, it’s not a bad idea to propose a guarantee and condition it just to the base rent. If you have a tenant in there whether it’s a related tenant or not, and they start failing to pay some of these common area maintenance charges or operating expenses, and you don’t want to be liable for that, you can give a guarantee to a portion of it but you do want to limit it to only the base rent or the absolute core of the payments you’re required to pay under the lease. I think a lot of landlords are going to push back on that, but it never hurts to make the ask. Why not take the position to negotiate that in there? Whether triple-net or gross, the entirety of the amounts paid under the lease are going to be guaranteed, but you may want to limit that in negotiations, whether that’s in-kind as to the type of rent that’s been guaranteed or in-time over a course of time after defaults. I think a lot of folks just sign those guarantees without ever looking at them and trying to push back. I’ll tell you as someone who has represented both landlords and tenants, there is probably some middle ground that most landlords are willing to accept for a good tenant. Point being, I don’t think it hurts to at least attempt to negotiate most provisions within a leasing contract. 

Contact us for a free consultation and advice for next steps.  

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Rob Hoverman is the Northern Midwest Regional Director and a registered professional geologist with more than 19 years of professional environmental services with a focus on contaminated site management. Rob currently serves as senior project manager for several projects in Indiana and Wisconsin. His diversified professional experience includes research, scoping and budgeting, project management, data analysis and interpretation for both hazardous and non-hazardous substances, including compounds such as chlorinated solvents, petroleum-related constituents, as well as metals. Rob has managed numerous investigation and remediation projects regulated by state programs, and his responsibilities involved every aspect of projects from proposal preparation through project closure, regulatory negotiations and stakeholder communications. Beyond technical evaluation and interpretation duties include obtaining contract approval, job initiation, budgetary analysis, budget tracking, and subcontractor contracting and management. Rob has also served as technical support for numerous vapor intrusion including soil gas, sub-slab, indoor air sampling and mitigation. As the Regional Director for EnviroForensics, Rob maintains momentum and resources for Wisconsin projects.

Dru Shields has over 10 years of experience helping numerous business and property owners facing regulatory action, navigate and manage their environmental liability. Dru has vast experience in assisting dry cleaners in securing funding for their environmental cleanups through historical insurance policies. Dru is a member of numerous drycleaning associations in addition to serving on the Midwest Drycleaning and Laundry Institute (MWDLI) advisory council and on the Drycleaning & Laundry Institute Board (DLI) as an Allied Trade District Committee Member. 

Ethan Geis is a member of the real estate and corporate teams at Davis|Kuelthau. He regularly represents businesses, investors, and management in a wide range of capacities, including development, financing, leasing, and acquisition and disposition of properties. His clients are engaged in projects ranging from office, industrial, retail, to multi-family. Ethan also counsels both well-established businesses and start-ups with regard to entity selection and formation, governance, regulatory compliance, crisis and succession planning, and commercial contract drafting. Ethan invests the time to understand his clients’ business plans and the industries in which they operate so that he can tailor cost-effective solutions to each client’s defined objectives. He uses his experience as a former litigator to help anticipate and avoid potential conflicts for his clients proactively. 

Andrew Skwierawski has over 12 years of legal experience. He combines that with a background as a veteran software developer and small business owner with his technical and scientific-focused law practice that includes environmental litigation, e-discovery, complex commercial disputes and municipal compliance. Andy’s environmental litigation work for Davis|Kuelthau has included representing manufacturers, property owners, farmers and environmental organizations. Andy represents drycleaners at dozens of sites across the State to address historical site contamination with the Wisconsin DNR as well as resolving insurance coverage disputes with their insurers. 

Ted Warpinski has over 30 years of experience working on a wide variety of environmental and litigation cases across Wisconsin. From the early years of Superfund litigation on sites like the Fadrowski Drum Disposal Site in Franklin, Wisconsin and the Moss-American Site in Milwaukee, Ted has been immersed in both the legal and technical aspects of environmental law. Ted’s litigation practice has grown to include environmental nuisance claims and toxic tort litigation, contract and property disputes, construction defects, insurance coverage litigation and enforcement actions. Ted also works very closely with the firm’s real estate and development lawyers handling due diligence investigations and environmental permitting. His experience includes addressing real estate deals that involve brownfield issues, where the risk of liability for historical contamination is a major consideration. Ted’s experience allows him to assist the Davis|Kuelthau team with understanding and managing these risks. 

DRYCLEANERS LEANING ON ASSOCIATIONS, EACH OTHER TO COME UP WITH SOLUTIONS AND INNOVATIONS TO ENSURE THEIR SUCCESS IN THE NEAR FUTURE

BY: DRU CARLISLE

I’ve worked closely with dry cleaners for almost 12 years. During this time, the well-being of the industry has become a passion of mine. Unfortunately, my drycleaning friends had been observing a decline in dry cleaning operations across the country even before coronavirus, and now with work-from-home, virtual learning, limits on gatherings, it’s become even worse. Although, with news of vaccines ramping up and another round of PPP, we’re all optimistic things will start to turn around sooner than later. Either way, it’s had an enormous impact on this industry. And if you’re one of the cleaners who is surviving and doing well – good for you! Seriously! And if you are doing well, I might even guess that you’re a member of the Drycleaning and Laundry Institute and have been taking advantage of all the resources they are offering their members.

Now more than ever, drycleaners have been leaning on their associations and each other to come up with solutions and innovative ways to ensure their success in the near future. I want to remind drycleaners of the resources available to you. And to me, the biggest resources is being a member of The Drycleaning & Laundry Institute (DLI).

The DLI has been the premier trade association and voice for this industry since 1883. Since their inception, DLI has worked hard to provide its member base all the tools necessary to aid in running a successful, professional operation. Its not just the benefits and services (like website production, social media posts, garment analysis, etc.) but it’s the education and advocation they have done on behalf of the industry, especially since Covid started.

If you’re a DLI member, you’re likely also well-aware of the twice-weekly Zoom meetings that it offers its member base. These Zoom meetings offer attendees an opportunity to ask questions about anything related to their drycleaning business and for feedback on issues important to them that DLI can help address either through additional educational opportunities or through advocation (i.e. PPP questions, Care Label Act, allied trade webinars, DLI webinars, etc.). They also have an opportunity for peers to share ideas and advice with each other. These Zoom meetings alone have proven to be invaluable to members looking for way to continue to be successful. Not to mention the Drycleaning & Laundry Institute Facebook Group where members congregate and share their insights.

Here are five more reasons why dry cleaners should join DLI:

1. GARMENT ANALYSIS APP
Have you ever wondered why a certain item can’t get clean? Now you can take a picture of the item and get feedback through DLI’s Garment Analysis App. There’s no need to send it out for analysis anymore, which will cut down on wait times.

2. ENCYCLOPEDIA OF DRYCLEANING APP
Learning from others’ experiences can solve your challenges faster than trying to forge ahead alone. With over a century of experience helping dry cleaners, DLI has a wealth of resources available with guides and articles to support dry cleaning businesses.

3. STAIN REMOVAL APP
Have you ever wondered how to clean a stain you’re unfamiliar with? DLI has an app that can help you identify the best way to get that item clean. For example, if you have a rayon blouse with an ink stain, through the app, you will be able to select the material and type of stain and it will provide you with step-by-step instructions to remove the stain

4. DIGITAL MARKETING AND CUSTOMER OUTREACH
DLI will set up a website on your behalf, manage social media posts, and email marketing to your customer base.

5. DLI EXPERTS ON DEMAND
DLI experts can provide the support you may not be able to find elsewhere for your questions or technical problems. Instead of waiting for an answer, you’ll receive a prompt answer via phone, email or online chat.

It’s important for dry cleaners to periodically ask themselves what they are doing to help their business. Having a tool such as a DLI membership as a resource to help improve your operations, your practices and to take a load off your shoulders is an easy item to prioritize to ensure future success.

If you’re interested in becoming a member of the Drycleaning and Laundry Institute, visit dlionline.org. To stay up to date with the latest industry news, you can also follow DLI on social media.

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Dru Carlisle, Director of Drycleaner Accounts
For over 10 years, Dru has helped numerous business and property owners facing regulatory action, navigate and manage their environmental liability. Dru has vast experience in assisting dry cleaners in securing funding for their environmental cleanups through historical insurance policies. Dru is a member of numerous drycleaning associations in addition to serving on the Midwest Drycleaning and Laundry Institute (MWDLI) advisory council and on the Drycleaning & Laundry Institute Board (DLI) as an Allied Trade District Committee Member.

WHETHER YOU’RE BUYING, SELLING, OR NEAR A PROPERTY THAT’S ABOUT TO GO ON THE MARKET, YOU CAN’T AVOID ENVIRONMENTAL LIABILITIES.

Our Director of Drycleaner Accounts, Dru Shields, is working overtime these days staying abreast of trends and events that are impacting our drycleaner clients. She and I talk nearly every day, so this month I asked her to collaborate with me on this article to address an issue, of which we are hearing more often.

ENVIRONMENTAL LIABILITY CANNOT BE AVOIDED  
Everyone has heard it’s “best to let sleeping dogs lie” at some point. This old proverb presents the question, “Why bring up issues from the past that will only cause trouble? Let’s leave these things alone and as they are.” There is wisdom in this saying, but it’s not necessarily applicable for every situation. Do you own a property with a potential environmental problem from past drycleaning operations? Are you in a position where you may be blamed for an environmental release? I don’t believe that the sleeping dog proverb applies here. If it were me, I’d rather wake that dog myself, gently and cautiously, than have someone else wake him abruptly and make the situation go from manageable to unmanageable. I’m referencing, as you have guessed, the question of if, when, and how you approach looking for a potential environmental release at your drycleaning property.

As experienced business owners know, a large number of environmental problems are discovered during commercial real estate property transactions. When properties are to be exchanged from one business entity to another, or even refinanced, potential liability for environmental issues may also be exchanged if the new owner or lender doesn’t perform an adequate inquiry into the environmental conditions at the property. In turn, financial lending institutions are especially interested in looking for environmental contamination. They would like to take possession of the property that was used as collateral in the transaction without assuming liability for a costly cleanup, should their loan become default.

Read our answers to the most common questions about buying or selling drycleaning properties

CERCLA AND HOW ENVIRONMENTAL LIABILITY IS ALLOCATED
The rules governing the transmittal of environmental liability are enforced by the United States Environmental Protection Agency (U.S. EPA) using the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly referred to Superfund. CERCLA defines a liable party as: (1) the current owner and operator of a contaminated property; (2) any owner or operator at the time of disposal of any hazardous substances; (3) any person who arranged for the disposal or treatment of hazardous substances or arranged for the transportation of hazardous substances for disposal or treatment; and (4) any person who accepts hazardous substances for transport to the property and selects the disposal site. In most cases, numbers (1) or (2) define the situation for commercial property owners.

Also, under CERCLA, a person is an “owner or operator” of a facility (or property) if that person: (1) owns or operates the facility; or (2) owned, operated, or otherwise controlled activities at that facility immediately before title to the facility, or control of the facility, was conveyed to a state or local government due to bankruptcy, foreclosure, tax delinquency, abandonment or similar means. Remember, the U.S. EPA is not only interested in uncovering environmental contamination; they also want to find out who is responsible for it.

This is not news to most of you, but an owner of a drycleaning business that currently uses petroleum or chlorinated solvents, has used them in the past, or owns a property where they were used by others in the past. There is likely an old environmental contamination hanging around that probably belongs to you, whether it’s known or not. Since potential purchasers don’t want to inherit environmental issues along with a property, they are going to make sure that the rightfully responsible party claims it before the deal is closed. This is done during the environmental due diligence process by performing the Phase I and Phase II Environmental Site Assessment (ESA) process.

ENVIRONMENTAL CHALLENGES OF PERC CONTAMINATION
Unfortunately, perc contamination does not get better over time. It does not degrade quickly, and it does not usually stay in one spot. In fact, perc contamination tends to get worse over time. It is persistent in the subsurface and it moves in groundwater, which ultimately means that what might have been a smaller issue in the past, could end up being a much larger issue in the future. This is why stakeholders in property transactions that don’t directly involve your property could uncover your perc contamination if they want to buy a property located adjacent or nearby where environmental impacts may have migrated across parcel boundaries. I understand that drycleaners feel that they have a target on their back, but ultimately, human health is at risk. It’s the reason why regulatory standards exist and tend to get more stringent over time. In the past, the standard for Phase I ESAs used during commercial property transactions to predict the likelihood of environmental impacts had focused primarily on releases of hazardous substances to soil and groundwater. Groundwater impacts can migrate a fair distance beyond property boundaries, so even real estate deals being conducted a block or more away may prompt a look in your direction. Also, with the increased concern regarding vapor intrusion issues, the number of people looking toward a potential source of solvent releases, like current or past drycleaners, has also increased.

Learn why perc contamination is so challenging to clean up

HOW OLD INSURANCE CAN HELP MAKE ADDRESSING ENVIRONMENTAL LIABILITIES EASIER
I’ve spoken with a number of drycleaners who at this point would rather put off buying or selling just to avoid having to look into the possibility of environmental issues, or frankly, they don’t want to believe there could be an issue at their property in the first place. I totally get this! It can be scary to consider whether there might be an expensive liability looming overhead or rather, down below. Especially given how the past year has treated the drycleaning industry, the thought of a possible one-million-dollar cleanup is the last thing that any drycleaner needs. The frequently forgotten saving grace is that there could be historical insurance assets that could help offset those costs. If you, or a predecessor, has old commercial general liability (CGL) policies, you can likely get some or most of the costs associated with environmental cleanup taken care of. Which of course is a win-win: 1) you’ll minimize your own out-of-pocket expenses, 2) you can take care of the environmental problem without leaving it for someone else to have to figure out and pay for it. This of course, would translate to “gently and cautiously waking that sleeping dog” but it would certainly be a fair trade knowing that there could be some funding available to you for taking care of that dog once he is awake.

There is no guarantee that every subsurface environmental release of hazardous chemicals is going to be discovered. Past or present drycleaning operations, especially those where perc was or is used are highly associated with environmental releases and are most commonly identified as reasons to perform subsurface sampling during property transactions, along with gas station sites. With the past changes and possible future changes to the environmental due diligence process and the continuing concerns about vapor intrusion, the odds are getting even higher that most former and currently operating perc drycleaner sites will be investigated at one time or another. Have a look at whether you may fit the definitions presented above as being liable for an environmental problem, pull together your property’s transaction history, look and see if there is a “For Sale” sign on that commercial property in your neighborhood, look into historical insurance assets that might help pay for possible investigation and remediation activities, and get some professional advice.

If you’re about to start the real estate transaction process or near someone who is, and you’re concerned about potential liabilities contact us today.

As seen in Cleaner & Launderer