It is no secret that the economy is not in good shape. Particularly financing, including the commercial finance market, has tanked. As such, self-storage operators are finding themselves faced more and more with business occupants who go out of business. Self-storage owners are finding themselves in a position where either business that previously stored documents with them are going out of business and defaulting on their self-storage obligations and leaving records in the unit, or business which are in the process of going out of business quickly rent a self-storage unit and place business records and other materials in the self-storage several later then default. Funny, the industry used to advertise it was a great place for record storage. Often the records that you are finding left in self-storage units are records that potentially contain personally identifiable information about members of the public. Specifically, self-storage has seen more than its fair share of mortgage brokers who leave hundreds or thousands of mortgage applications, tax returns, etc., in the unit and disappear. Even doctors and other medical providers are ceasing operations and leaving medical records, containing health information, social security numbers, and other documents behind for the self-storage operator to handle.
If you have seen me at any of the ISS Expos or heard my webinars, you know that for a long time I have been a proponent of excluding from a sale of goods any items of personalty that have no resale value to the buyer such as diplomas, documents with social security numbers on them, tax returns, and etc. When people ask me how do we enforce this, generally my answer is “the honor system,” that is the sale rules signed by the bidder excludes these items and they buyers are required to bag or box these types of items when they find them and return them to us for safe-keeping or proper disposal.
However, while I have mentioned it before, and while I have been asked the question privately by clients for years, we have never really discussed in ISS Magazine, the matter of an entire unit full of what appears to be nothing but business records, such as mortgage or medical records that would only be of value to an identity thief.
This issue has been brought to light recently in the State of Maine with a mortgage broker who stored records at a self-storage facility. A mortgage brokerage company which was going out of business notified the Maine Bureau of Consumer Credit Protection that they had a storage unit full of files containing their clients’ personal information, that they had defaulted on the unit, and the unit was scheduled for sale. The Superintendent of the Maine Bureau of Consumer Credit Protection tried to obtain those records to prevent them from being either lost or falling into potentially the wrong hands. The owner of the storage facility refused to release them contending he had a lien right against the records and the right to sell these records for whatever they would fetch. The Maine Bureau of Consumer Credit Protection Director asked the owner to release these records to the Agency and the owner refused. The Agency then served the owner with a subpoena, after which the Agency took the records out box by box. This scenario was contemporaneously played out in the court of public opinion thereby outraging the legislators in Maine who have now introduced a Bill (LD366) in an attempt to “over-correct” this issue.
This article does not seek to specifically describe the contents of LD366 because between the time of its writing and publication the Bill, it is sure to change, however, the import of the Bill would be to impose legal liability on the self-storage owner for any piece (yes I said any piece) of personal data or personal record that is released into the hands of anyone, aside from its rightful owner.
When Drew Whitney, former ISS editor, first brought this story to my attention, we blogged together about the case. I stated that I was afraid that it would only be a matter of time before someone proposed a Bill that would go way “over the top” and make self-storage operators legally responsible for the items sold. It appears our nightmare scenario is potentially coming true in Maine.
The problems with the Maine Bill, other than the obvious, are several. 1. The Bill imposes a different kind of liability on self-storage owners than it does on any other real estate owner who may evict or set out a tenant. For example, under the Bill as written, if a mortgage company is evicted from their office building the owner of the office building would not have the same duties, responsibilities, and liability as self-storage would have to control the records and dispose of the records at their cost. The same could be said of an apartment building. If you evict a tenant from an apartment, undoubtedly in the set-out process you are going to set out documents, such as tax returns, social security numbers and other items that have personally identifiable information. Thus, the Bill is potentially unconstitutional because of its different treatment of the self-storage industry. By the way, it does not appear the mortgage broker, who left the records, would have any liability under in this Bill for mishandling of the records, just the self-storage facility. 2. The self-storage owner, who is simply trying to get their space back for re-rental is punished because under this Bill, self-storage will become the best “go to” dumping ground for a business record disposal when a business cannot afford to pay the disposal. In essence, businesses know if they cannot shred their records, under this Bill, the self-storage operator has liability if the operator does not dispose of these records correctly, so businesses dump them at the self-storage facility. 3. You as the self-storage operator generally do not have any control or knowledge of what is stored in a unit. Even if you, as an operator, wanted to prohibit records from being stored in your units and you do so by lease provision prohibiting this type of storage, it does not mean that you will not cut a lock off in a default and find an entire unit full of records.
While many groups are working to defeat or modify this Bill, the rest of the industry should learn a lesson from Maine.
If you find a unit that appears to be full of records, you should never plan to sell the records. If you have a unit, half records and half office furniture, feel free to sell the office furniture but exclude the records. Often you can work with state agencies that might be interested or willing to take the records into their custody once the unit is in default. Where I live, we have an agreement with the local Academy of Medicine that they will take any medical records stored in a unit that is in default rather than allow the records to be sold, lost, or otherwise destroyed, because patients may need them. It appears in Maine that the Consumer Credit Protection Agency would have been willing to take the records if the owner would have released them, but you should plan on not selling records.
OK, then what do you do with records? First, in your state, determine whether your State statute discusses the right to “dispose” of property. Many states, in the small print of the statute, say that you may sell, or dispose of property. While I do not have the legislative intent that discusses what the legislature of your state meant by “or dispose,” I have to imagine that that language was written for the purpose of a situation where a sale was not possible or not achievable, not just a short cut way to clear out the unit. If you have the right to dispose, then there should be no problem with you giving a notice of intent to dispose rather than sell, and dispose of the contents properly by paper shredding or destruction.
If you do not have the right to dispose in your state statute, then you may have to take the extra step of evicting the unit in order to get the right to dispose of the contents. In either case, I have been saying for quite some time that the court of public opinion will never tolerate a large release of records containing a bunch of personal information into a dumpster.
Many of you argue with me on the Self-Storage Talk Forum that the cost and expense of shredding or other destruction is prohibitive and would ruin your business and that record disposal is not something you want to get involved with, especially if you argue that there is no precedent for disposal of records. You do not control what goes into the unit but suddenly you will have a duty to patrol what goes out. I have always argued that there is precedent because these are other types of units with contents you would have never sold. For example, if you opened up a unit and found illegal property, drug making paraphernalia, weapons, liquor, or other items that you have known forever that you cannot sell, you would have never sold. You would have arranged for the proper disposal of those items. In this day and age, records with personally identifiable information are the “new” liquor and weapons, and you must make provisions and be prepared to dispose of them properly. If this means raising your rent on business units, then so be it.
I have found, representing many owners over the last several years on this subject, that if you arrange a regular shredding service, the price for shredding, whether a little or a lot, is pretty much the same and can be a manageable price. It is time to factor a shredding service in to your operating budget.
In the end, you can argue all you want that it should not be your responsibility to dispose of these records, and I will agree with you. It should never have been your responsibility, but once you have records and a unit goes into default and there is no agency to take them, you cannot simply put them in the dumpster. First, you risk the damage to your reputation in the community and in the court of public opinion but second, you risk causing your state Legislature to escalate your responsibilities from what you currently have to an affirmative duty to go through all items, all boxes, all drawers, all records and properly dispose/handle these records so they do not fall into the wrong hands. The Maine Bill comes with some extra “neat benefits”, which will hopefully go away, including, requiring that you as a self-storage operator register with a bureau to regulate the self-storage industry along with a potential registration fee and submission of a records disposal policy that must be approved by the bureau before you may continue your sales. Believe me, it is cheaper to plan to shred or properly destroy these documents than it is to bring this kind of bad law into your state.
Jeffrey J. Greenberger is a Partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati, Ohio and is licensed to practice in the states of Ohio and Kentucky. Mr. Greenberger’s practice focuses primarily on representing the owners and operators of commercial real estate, including self-storage owners and operators.
This column is for the purpose of providing general legal insight into the Self-Storage field and should not be substituted for the advice of your own attorney. Jeffrey’s website,www.selfstoragelegal.com, contains Jeffrey’s legal opinions and insights into the self-storage industry, as well as an article archive.
Jeffrey is the legal counsel for several State Self-Storage Associations, as well as a regular presenter at Inside Self-Storage Trade Shows. You can send your questions, comments, or suggestions for future topics to Jeffrey J. Greenberger at firstname.lastname@example.org, or mail them to Jeffrey J. Greenberger, c/o Katz Greenberger & Norton LLP, 105 E. Fourth Street, Suite 400, Cincinnati, Ohio 45202, or you can reach Mr. Greenberger at (513) 721-5151.