Apr 192011
 

Vehicle storage has become an exciting and often profitable additional service at many self-storage facilities and in recent years, there is an incentive to a product that generally has a longer length of stay and in outdoor storage requires little additional upkeep expense. Unfortunately, with these benefits comes some burden which requires careful planning to avoid, or else your profit center quickly becomes a great risk for loss.

Vehicle storage (boats, RVs, cars, etc.) is a different kind of business than traditional self-storage, particularly as vehicles are often stored anywhere but in a separate, enclosed unit. Whether you’re renting storage in an open lot, covered building or individual units, vehicle storage presents several unique issues.

Creating a Bailment?

With the exception of individually enclosed units, the first issue to consider is whether vehicle storage creates some sort of bailment. Generally, in traditional self-storage, if you don’t keep a key to the unit and the tenant has the ability to store and lock his own personal property, you don’t have a risk. But when you store vehicles in a common area-even if you don’t keep the keys-it’s possible a bailment exists.

What’s a bailment? It’s the “transfer of possession, but not ownership, of personal property for a limited time and for a specified purpose such that the individual or business entity taking possession is liable to some extent for the loss or damage to the property” (from Webster’s Dictionary of Law.) Think of the duty of care you would expect from your dry cleaner or a valet parking attendant. Compare this to typical self-storage in which you do not take possession of property but only lease space. When vehicles are not stored behind four walls and a door, a bailment is arguably created, and you have a greater duty of care.

I’m not saying you have to physically care for each vehicle, such as washing it or changing the oil, but you have a responsibility to protect it from damage, notice issues of damage and maintenance, and report these issues to the owner. If the vehicle is visible while being stored with you, then you have a different relationship with your renter.

But just because you may create a bailment doesn’t necessarily mean you want to avoid the vehicle-storage business. You just need to understand you have a higher duty in regard to the property. It’s not a bad problem to have, just different from the one you’re used to. You’ll also need to amend or create operating procedures recognizing that you now protect tenants’ property, unlike goods stored in units and create some new lease clauses, including default clauses to address the special issues involved with vehicle storage.

 

Defining the Space

It’s difficult to define the specific space being leased to a customer if you don’t have a paved, striped and numbered area for vehicle storage. Sometimes a tenant will believe he has leased a certain “spot” at the facility, yet when he returns with his vehicle, somebody else is parked there or worse, a broken bottle or an RV “extension” interferes with use of the space. He then claims you defaulted on the rental agreement because “his” space was not available. Even if you have a striped and numbered lot, it’s unlikely that your vehicle-storage renters always park between the lines.

It’s important to have language in your rental agreement that describes the space rented, but doesn’t define it so closely that you’ll be in violation of the lease if another renter parks in all or part of it. You should have some type of “exculpatory” language in your lease disclaiming a default in this event, along with some punishment rules for those who interfere with other tenants using their spaces.

Consider having one or more spaces labeled as “overflow parking.” You can then put a provision in your lease stating that in the event an occupant ever finds the premises unusable or filled, he is required to park in the overflow spot, and this does not represent a default by the operator under the rental agreement.

Moreover, there have been a lot of lawsuits recently about the actual size of a space being different than that represented to the tenant in the rental agreement. This type of claim is much more likely to occur with an outdoor storage space, such as in a lot. Make sure you include lease language that indicates sizes are approximate, and you are renting by the space, not the square foot.

Extra Services

Some of you go even further in the bailment and provide additional services, such as parking tenants’ vehicles and retaining keys so you can move them in and out of the way as necessary. Some of you offer ancillaries such as vehicle cleaning, dump-out, stocking, warm-up and pull-out. When you provide these types of services, you have gone beyond storage, and there is no doubt you are in a bailment situation and there is a lot of extra risk involved.

Don’t forget to address these services with a property written rental agreement. You may need additions to your lease or addendums for the various types of services offered. Some of the vehicle-storage leases I have prepared for state self storage associations contain 20 or more addendums to support different types of vehicle storage services. These addendums cover items such as dump stations, wash stations or potable water supplies.

These matters must be addressed to ensure liability is properly allocated between the storage operator and customer. For example, let’s say you provide a dump station and a tenant uses it improperly. If this is not covered in your lease or addendum, it’s going to be very difficult to charge the tenant for the damage. Further, if you charge for any of these services, make sure costs are clearly delineated, and always reserve the right to close or terminate a service from a single tenant and from the facility.

Have your lease and other documents reviewed often by an attorney familiar with this area of the law. Also review the entire business plan to see if it’s in your best interest to set up and separate entities to hold various “risky” parts of your operation. For example, if you’re going to actually move boats to the water from your facility, you may want to hire a separate entity to handle the transportation portion of the business, with a separate contract.

Accurate Information

Collecting accurate tenant information on your rental agreement gives you a better change of locating the vehicle owner in the event of an emergency or default. This has never been more important as more and more vehicles are now abandoned at the self-storage facilities when the owners can’t make the payments. If you have good lien and title information, the bank may take the vehicle back from you in the form of a repossession and may even pay some storage charges. Otherwise, you become the “lien hunter.” It also gives you a better defense in the event a claim is brought against you for wrongful disposal or termination of contract. Consider requiring the following information with your lease:

• The year, color, make and model of the vehicle
• The license-plate number and state
• The VIN or other identification number
• A copy of the vehicle registration

Just as with self-storage, do not allow more than one person to sign the lease. In addition, require your lessee to be the actual owner of the vehicle. If the name on the registration is not the same as the person executing the rental agreement, your customer must have a statement notarized by the owner that clearly states it is acceptable to store the vehicle at the facility. Make sure you have all of the owner’s relevant information. By doing this, you will help avoid the possibility of storing a stolen vehicle. You can also steer clear of issues if ownership is ever disputed.

Vehicle storage can be particularly complicated because there are titles and liens involved. If you ever find yourself in controversy, make sure you know who the owner of the vehicle is. Hopefully, it’s your tenant.

All Potential Vehicles

As you gather information for the lease, get details on every vehicle that could potentially be stored in the space. For example, someone might store a trailer and two jet skis in a single space, which counts as three titled vehicles. Don’t forget to get information on each of them.

Many tenants will pick up one vehicle at the storage facility, such as their RV, and leave the one they drove in at the space. This creates a problem if you haven’t previously approved of and collected data on this other vehicle. All of the sudden, the RV is gone and an SUV is in its place. Does it belong to your tenant? Is it insured? Is it subject to the terms and conditions of the rental agreement, which sets things like value limitation, release of liability for damage, etc?

If there’s a chance another vehicle is going to be left in the space for any length of time, it needs to be listed as an additional vehicle on your rental agreement. If it’s not, all the trouble you have gone through to protect yourself on the main vehicle could be for naught, especially if something happens when the different vehicle is stored by the same tenant in the same space.

Don’t forget to check your state’s self-storage statute. Some states have provisions to address simple things, such as the superiority of your lien to a filed or recorded vehicle lien, or complex issues, such as procedures specifying exactly what to do to obtain a title to a vehicle in default so you can sell it. Don’t assume you can simple go down to your local title agency and obtain a lienholder’s title anytime a vehicle is in default and sell it at your next lien sale. This is often not the case. Even if you can get a new title, if there is a lien on the vehicle, that lien almost always is superior to your storage lien. Thus, you may do all the title work and sell the vehicle and not be entitled to any of the sale proceeds.

Hazardous Materials

Vehicle storage presents a special problem because vehicles contain hazardous materials just waiting to spill, leak or explode on the property in the form of gasoline, lubricants, battery acid, tires, toilet chemicals, etc. This problem is exacerbated by the fact that vehicles are parked on soil, gravel or asphalt, which allows the chemical or spill to quickly enter the soil.

Given the volume of liquids and lubricants stored in a RV, for example, a leak or spill could crate a serious environmental hazard on your property. Further, some tenants try to store extra gas, chemicals, tires, etc., in or around their property. Fortunately now there is reasonably priced hazardous cleanup coverage, but you have to buy this type of coverage separately. Include limiting language in your rental agreement specifically targeted to the outdoor storage of vehicles, outlining how much liquid (i.e., gas) may be stored and preventing additional liquid storage.

Also keep in mind you could actually be creating a default under your mortgage by failing to prevent hazardous waste from being brought onto and used on your property. Check with your mortgage holder to ensure the vehicle does not violate a term or condition of your loan. This is one lesson you do not want to learn the hard way.

Also make sure your insurance company is aware of this type of storage at your property. To determine whether you have uncovered risks in your policy, have it reviewed by your insurance broker or legal counsel. If you allow or plan to allow vehicle storage and your insurance policy does not cover hazardous waste, find a self-storage insurance policy that permits the use, or but a rider to your existing policy. One bad spill can cost years of profit.

Drip Pans

Require a drip pan or absorbent pad designed to retain petroleum products under the parts of a vehicle that might leak. I know this seems like a funny idea, but many storage operators use and swear by them. These devices provide several benefits:

If properly placed, it can catch dripping or leaking fluids, protecting you from environmental contamination.

Since very few people carry their own drip pans or absorbent pad, you can stock and sell them as a source of ancillary revenue. Both can easily be stocked in your store and sold as a requirement of vehicle storage, and don’t forget to sell cinder blocks to hold them in place.

There’s also a customer-service aspect. If you ever see a drip pan or pad containing some sort of unknown fluid, you have the opportunity to call the tenant and let him know his vehicle is leaking. You’ve just saved the customer from breaking down on the road, and you’ve stopped the vehicle from causing hazard or damage to your property.

Vehicles in Default

What happens when a vehicle-storage tenant defaults on his rent? Make sure you have remedies to this situation built into your rental agreement. If your state permits removal of the vehicle by a lien right, eviction statute or towing to an impound lot, give yourself these rights in your lease. Additionally, post whatever signage is necessary or required in your state.

Assuming you have a default clause in your lease, make sure one of the remedies listed permits you to terminate the gate access of the stored vehicle. If the occupant removes his vehicle from the facility and has not paid his rent, you can then prohibit him from returning the vehicle until rent is paid. In some states, you can consider a tenant to whom you have denied access to be a trespasser if he tries to re-enter the facility.

Being able to tow a vehicle off the property helps you minimize your damages, even if you’re not able to sell it once it is towed. (In most states, selling a vehicle is complicated, expensive, and often does not result in any money for the self-storage owner because of prior liens. See above.) If you are allowed to tow and you do it early in the default, you’ll be glad.

 

Rules and Regulations

Not only do you need a lease and/or addendums covering the aspects of vehicle storage mentioned above, you’ll need rules and regulations. For example, a vehicle in the storage area may be subject to an aesthetic requirement. You may not want to allow vehicles with rust, defaulted tires, broken windows, etc. Or perhaps you want to require that vehicles be operational, currently and accurately registered, or subject to annual state inspection. Your rules and regulations may also include items such as back-in or front-in parking, and charges for occupying too many spaces or the wrong space.

If you wish to prevent your vehicle-storage area from looking like a junkyard, you must incorporate your rules into your lease. If they are listed on a separate sheet, refer to them in the lease, stating that they are part of the lease and subject to the default provisions. This will give you grounds to terminate an agreement if a tenant fails to comply.

Right From The Start

It’s important to work with your attorney to incorporate vehicle-storage provisions into your lease. The best time to address these issues with customers is when they sign the lease, before you give them access to the facility. It is important to ask about vehicles because many people rent a traditional storage unit intending to put a motorcycle in it. If you don’t ask you will not find out, and then you are potentially stuck with a problem. If you wait until after the vehicle is onsite, it’s too late – there’s no reason for the renter to give you additional information or to agree to the lease terms. Remember, while outdoor/vehicle storage may be profitable, an unexpected problem not covered in your lease can quickly make it a losing venture.

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton, LLP, in Cincinnati. He primarily represents owners and operators of commercial real estate, including self-storage. 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. Mr. Greenberger is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. His new website, www.selfstoragelegal.com, contains his legal opinions and insights into the self-storage industry, as well as an article archive. For more information, call 513.698.9350; e-mail jjg@kgnlaw.com.

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