I originally intended to call this article Challenges For Structuring Interior Design Purchasing Fees and Mark-ups, but felt that might be too alarmist.
Nevertheless, Interior Designers often find it challenging to craft the best structure and find the right way to charge clients for interior design services, as well as related services like purchasing and project management. Whether you plan to start up an interior design business or you are already a seasoned interior designer, having clear terms on charges for art, furniture, finishings, fixtures, and other decorative items (sometimes generally referred to as “FF&E” for convenience), will avoid problems in the future. I find a lot of designers tend to skew toward vague and general terms about how marks-ups are calculated and charged.
Another wrinkle arises if the Designer obtains items exclusively through trade-only sources, since there is no “retail” equivalent. The Designer has developed relationships with vendors and service providers enabling Designer to receive pricing and availability not accessible to the public at large.
Interior Design contracts cases rarely make headlines. That’s why a recent case in Virginia is worth noting. In the U.S. District Court for the Eastern Dist. of Virginia case of Tanya M. Johnson v. Robert Shields Interiors, Inc., the contract for interior design and decorating services, including purchasing furniture, authorized a ten percent (10%) markup on shipping and related services but did not provide for any other markups, commissions, or fees. Johnson v. Robert Shields Interiors, Inc., Civ. No. 1:15cv820, 20 (E.D. Va. May. 11, 2016)
At trial, plaintiff proved that the designer never provided any receipts, vendor invoices, or purchase orders, to show commissions or rebates received from the vendors, and the designer further refused to provide proof of the furniture charges and shipping costs when asked. Discovery revealed that the designer was secretly marking up most of the furniture sourced for the client by anywhere from 35 to 100 percent. Although the Court entered a default judgment for the plaintiff for the defendant’s failure to appear at trial to defend himself, the court did analyze the breach of contract claim and did state that the designer’s “undisclosed markups on items procured for plaintiff are a breach of the Agreement.”
Also worth noting is the Court’s analysis of the claim for violation of the Virginia Consumer Protection Act (VCPA). The Court stated that the failure to disclose “rebate and commission arrangements with its vendors” and “charg[ing] … undisclosed markups for many of the furniture items procured,” such as “$4,800.00 for a lounge that only cost $2,481.00, and $11,000.00 for a table that only cost $5,999.40” satisfied the VCPA’s prohibition against using deception, fraud, false pretense, false promise, or misrepresentation in connection with a consumer transaction.”
Given my experience working with interior designers, the designer in the Johnson case no doubt believed that because the contract was silent on the amount of the mark-up that he could charge, he had discretion to charge whatever mark-up he chose.
To avoid these headaches, it is important to be clear about how purchasing fees are structured. This can be done several ways. First, if you intend to charge for your time spent during the purchasing process, then include that in your contract. For example “Designer shall charge it standard hourly rate for all time spent on the procurement of furniture and decorative items.”
Second, if you intend to charge a flat fee for the purchasing process, then be clear about whether that fee includes your fees. For example, the following clause comes from another case [Marcus v. Marlene Dennis Design, LLC] https://www.virginiabusinesslitigationlawyer.com/wp-content/uploads/sites/52/2022/07/Marcus-Complaint.pdf that also made headlines.
Here is the clause at issue:
“Furnishings, rugs, artwork, decorative lighting and accessories not to exceed $250,000. Designer and client to review Furniture Plan and agree on the items to be re-purposed and to confirm that $250,000 is an appropriate amount given the items required.”
This clause is simply too vague. For example, it is unclear what is included in the $250,000 sum.
Key Take Away:
Contract language that governs fees on purchasing services, commissions on the goods, and/or third-party services, must be clear and unambiguous as to how the fee is calculated, what purchases are subject to the fee, whether discounts are available, and how they’re applied, if at all.
For answers to these and other mission-critical business issues faced by designers, please contact us today for a no-fee, limited, no-obligation consultation. (866) 734-2568. http://www.adler-law.com