July 1, 1998
What Should a "Standard" Payphone Location Contract Include?
By Bob Lane
So you’ve decided to enter the payphone business but you have no idea where to start.
Have no fear: Independent payphone providers (IPPs) can reap great rewards if they
have a basic understanding of the payphone industry.The future value and selling price of
a payphone route are influenced to a great extent by the strengths and weaknesses of the
contractual relationships that exist between the IPP and the "locations" that
the payphones occupy.
For example: What can an IPP do if its contract does not prohibit the location owner
from removing its equipment so another IPP (who may have offered a slightly higher
commission or a sign-up bonus) can install its payphones?
Most location owners won’t behave in this fashion, but if one does, an unprepared IPP
just might be out of luck. The future value to an IPP (and potential selling price) of
that location is certainly questionable.
The following are explanations of the different sections of a standard payphone
location contract as well as questions every IPP should consider before signing on the
Contract Title: My personal favorite is "Standard Public Payphone Location
Date: When the contract was executed.
The Parties: The names and addresses of those parties who agree to the terms of
the contract. In my contracts, I make myself the lessee and the location the lessor. In
effect, I want to be perceived as renting the space the payphone(s) occupy, in exchange
for rent (in the form of the commissions I pay to the location).
Lease of Space: The business name, address and description of the location. The
purpose of leasing the space (i.e., for the purpose of installing, operating, collecting
revenues from, maintaining, servicing, repairing, and eventually removing one or more
Rental: The description of the method of calculation and payment of the lease
rental amount (commission). It could be a percentage of the gross monthly local and long
distance coin revenues collected from the payphone(s) less local and long distance
charges, maintenance costs and taxes, for example. It could be a percentage of all the
payphone revenues. It could be a flat amount, such as weekly, monthly or annually. There
might be a requirement that revenues exceed a certain dollar amount per month to generate
a rental payment, or that the location subsidize "low revenue" payphones. The
possible combinations virtually are endless.
Accounting: This item makes it clear that the IPP is willing to provide some
form of accounting detail with commission payments (it could be a good selling point).
Costs: Who pays for the installation, repair, operation, collection and
maintenance of the payphone(s), the IPP or the location?
Telephone Bills: Who pays the phone bills for the payphone(s)? In whose name are
the phone bills, the IPP’s or the location’s?
Reports of Malfunctions: It might be a good idea to require the location to
report malfunctioning and/or damaged equipment in a timely fashion.
Other Contracts: The IPP might want to provide that the location does not have
any other contractual obligations that might interfere with the IPP’s contract.
Right of First Refusal: This is defined as a situation in which the location
agrees not to enter into an agreement with another payphone service provider (after the
IPP’s contract expires), without first offering the IPP the opportunity to continue
providing payphone service.
Signs: This addresses the IPP’s concerns regarding the placement of signs
advertising the availability of payphones at the location. Specifically, is this done at
the IPP’s expense?
Term: The length (months/years) of the contract can vary widely depending on the
desires of the IPP and the location.
Renewal: Will the contract automatically renew for a successive term (or terms)
unless the location gives some form of notice (possibly during a specified time period) to
the IPP? Will the contract automatically renew for a successive term (or terms) as long as
the IPP has not given the location cause to end the contract?
Successors: Will the contract be binding upon IPP’s and location’s heirs,
successors and assigns? (It might be difficult to sell a payphone route with unassignable
contracts.) Will the contract’s provisions "run with the premises"?
Access: An IPP may feel that having access to the payphone equipment during a
location’s normal business hours (for inside installations) is essential to installing,
maintaining, altering, repairing, improving, collecting from, adding to, operating and
removing payphone equipment. It’s a good idea to include this concept in the contract
Utilities: If the IPP feels the need to have electric lighting at the
payphone(s), the contract should indicate which party will pay for the electricity.
Ownership: If the payphone equipment is the property of the IPP (and it usually
is), the contract should say so to avoid any future confusion about ownership.
Business Hours: Does the location agree to remain open for business during
regular business hours? Will the location be considered in default of the contract if the
location stays closed for a certain period of time?
Authority: The location might be governed by a present or future owner,
beneficiary, lessee, managing agent or other authorized occupant of the payphone location.
Does that person have the authority to enter into a contract with the IPP? If there is a
change of location ownership, does the contract become part of the sale and will the
contract be binding upon the new location owner?
Default: If the location breaches or defaults on the contract, what actions can
be taken by the IPP? Will there be notifications by certified or registered mail? What can
the IPP do if the breach or default isn’t corrected within a specified period of time? Can
the IPP remove its payphone equipment, if necessary? Who pays for the removal?
Liquidated Damages: If the location breaches or defaults on the contract before
the end of the contract term or terms, can the IPP recover damages sustained and/or
damages for loss of future revenues? Is there a minimum amount of liquidated damages due
in the event the location cancels the contract before the payphones are installed?
Cancellation: Does the IPP reserve the right to cancel the contract and, if so,
for what reasons and with what kind of notice? Can the IPP cancel the contract because of
bankruptcy of the location or closing of the location or failure of regular business hours
at the location?
Agency: Does the IPP want the location’s permission to look at records relating
to prior payphone service providers, such as the local exchange carrier?
Installation: How soon after signing the contract can the location expect to
have the IPP’s payphone service installed and operational?
Minimum Revenue: Is the IPP permitted to terminate the contract and/or remove
one or more payphone(s) if it doesn’t meet a minimum income standard?
Damage: Is the IPP financially responsible for damage to the location resulting
from removal of its payphone equipment?
In addition to the usual signatures and dates, it is a good idea to get the employer
identification number or social security number of the location owner for tax purposes.
As an IPP and owner of the payphone equipment installed at a location, you are
responsible for ensuring the phones are attractive and operational. However, the location
owner has a certain obligation to your equipment, as well. In general, a location owner
must refrain from:
Placing any lien or encumbrance on any of the IPP’s payphone equipment.
Marking, painting, drilling into or otherwise defacing, moving or removing the IPP’s payphone equipment or permitting others to do so.
Placing or painting signs, advertisements or notices on the IPP’s payphone equipment or permitting others to do so.
Altering the location in some way that would adversely affect the use of the payphone equipment.
Allowing another payphone service provider to provide payphone service at the location.
Attaching an extension to the IPP’s payphone line.
These are just some of the highlights of contracting with location owners. However, as
with other aspects of the payphone business, IPPs always should get professional
assistance in the appropriate circumstances. Obtain legal counsel when it comes to issues
such as location contracts.
Bob Lane is the owner of http://www.payphones-usa.com
(Payphones-USA), a resource for beginning IPPs, and http://www.telefone.com
(Telefone.com). He also is the owner of Lane Communications Co. (a payphone company in
Virginia, Maryland and Washington, D.C.) and co-founder of the Atlantic Payphone
Association. Additionally, he is the CEO of Payphone Consultants. He can be reached at
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