Jun 282019
 

Effective July 1, 2019, Iowa has made substantial updates to the self-storage lien law. This post highlights some of the biggest changes. This post does not cover all changes and you are encouraged to review the updated law with your legal counsel.

1. A lot of new definitions have been added to the Statute, including a definition of a Commercially Reasonable Sale, Default, Emergency, Verified Mail, Late Fee, Leased Space and Property That Has No Commercial Value. Additionally, definitions for Last Known Address and Occupant have been changed and the term “Owner” has been re-defined as Operator. As you may know, I am a wonk about being careful to use properly and use exclusively terms defined by the legislature, whenever possible, some of these new definitions, such as, Commercially Reasonable Sale and Emergency exist because of new sections of the Statute, which I will describe below.

2. New sections have been added to clarify that the Facility and the Leased Space may not be used for residential purposes, as well as a section to give you permission to enter the leased space for inspection or repair with notice or without notice, in the event of an emergency.
Here are some of the really big, exciting changes:

3. Iowa now has a safe harbor late fee of $20.00 or 20% per month, whichever is greater.

4. Service of the Default Notice no longer has to occur via Certified Mail. Any sort of Verified Mail and, in certain circumstances, email delivery of the Default Notice is permitted. Thus, you can now use options such as private delivery service or First Class Mail with a Certificate of Mailing for delivering your Default Notices. I will discuss email issues below. Also established is a presumption of delivery when mailing a notice by Verified Mail, such that a notice sent via Verified Mail is deemed delivered when deposited with the USPS or a private delivery service, properly addressed, postage prepaid. There is also presumption of delivery for email, again, I will discuss below. This change alone, will save a minimum of $6 to $7 per default and is a wonderful change, and has the result of actually getting Default notices in to the hands of your tenants, rather than having them skirt Certified Mail notices.

5. The Statute clarifies specifically a right to deny access, however, such right must be stated within your Rental Agreement. If you do not already have a statement in your Rental Agreement about the number of days late before you can deny access, you should add it effective 7/1/19, if you have a statement that puts the denial of access out, say 30 days, it is now time to consider shortening the time.

6. Enforcement of the lien has been clarified to make it clear that no sale may occur for at least 30 days after Default. While this would be a mathematical feat to achieve, given most Operators predisposition to not starting the default process until at least late in the first month, Iowa now has clarity.

7. The Statute also clarifies that the sale may occur either in public or private proceedings, as long as the sale is commercially reasonable. Iowa not has a definition of what makes a sale commercially reasonable, meaning that the sale can 1) occur at the facility or the nearest suitable place; or 2) sell on an internet site that conducts sales or auctions. Further, in a different section of Statute, a commercially reasonable sale, specifically as it relates to advertising, means that at least 3 independent bidders attend or view the sale in person or online at the time and place advertised. This is a gigantic change and incorporates several different aspects of your lien sale procedure. Pay attention to this entire set of changes.

8. The Statute now adds the right to dispose of any property that has no commercial value. No Commercial Value is now defined for you in the Statute.

9. The Statute now provides that the Owner may have a vehicle, watercraft, or trailer, which is in default for more than 30 days, towed from the Facility, in lieu of a sale. The Statute includes multiple changes to other sections of the Iowa Statute regarding the DMV and registration of vehicles to permit towed vehicles to be retitled in Iowa. Interestingly, the Statute also provides that towing does not release the Operator’s lien. I do not know at this time how that will work, or what priority your lien will take, compared to a towing company’s lien for towing and sale proceeds, but I will be interested to see how this works out.

10. Advertising has been changed dramatically. You are now required to advertise once, at least 7 days before the sale, however, it does not appear that newspaper advertising is required, rather you may advertise in any commercially reasonable manner. As described above, commercially reasonable manner now means an advertisement likely to attract at least 3 independent bidders to the online sale or to the in person sale.

11. The Statute has been clarified to say that the Operator may buy the Occupant’s property at public sale, if desired.

Here are some other changes which you may not be as excited about, but should be noted:

12. When you send out your Default Notice, you are now required to notify all persons whom the Operator has actual knowledge claims a security interest in the Personal Property. The Statute now requires that you must conduct a search to determine whether there is a security interest in the property, subject to sale. This is not really as big a deal as it may sound, but you also cannot ignore this new requirement.

13. You are required to now disclose within the Rental Agreement, whether the self storage facility is located in a “special flood hazard area” as defined by FEMA in 44 CFR Part 61 Appendix A (3).

14. There is a new section added to the Statute, providing that if a Facility is damaged or destroyed, to the extent that the Leased Space is rendered unusable, you must make a good faith effort to notify the Occupant of the event, allowing the Occupant to terminate the Rental Agreement, by giving the required notice in the Rental Agreement. While this makes perfect sense, I do wish the Statute had clarified more what to do if there is a catastrophic event and the Occupant does not respond after you give this notice.

Some things have not changed and is worth remembering, that the Default Notice, although served differently, still has many of the requirements of the old statute, including an inventory of the goods, meaning that you will cut the lock, and examine the Leased Space, prior to sending out the Default Notice and your demand for payment is still no less than 14 days after service of the notice.

I promised to address email. It is an absolutely terrific change, and, there is stated a presumption of delivery of emails that they are deemed delivered “when the email is sent to the last known address provided by the Occupant”. However, there is one exception, that if you receive an automated message stating that the email cannot be delivered, then you must then send a verified mail copy of the Notice. However, there is a new part of Section 5 of the Act, which provides in part that if you want to use email, both the Operator and the Occupant must agree to “satisfy all notice requirements under this Chapter”. Further, “if consenting to use email for the notice, the parties consent to use electronic mail for all notices”. The use of the word “all” concerns me. The intent may have been to limit email consent to Notices described under this Statute, which would be the Default Notice, but also, as an example, a notice that Occupant might give you after a catastrophic disaster that they want to terminate their tenancy, but the word all could really be construed to mean that if you are going to use email notices for things like Default Notices, then you have to use email for all notices, both ways, including then allowing the Occupant to give you email notice of change of address, intent to terminate for other reasons, etc., which is presumed delivered upon you, as soon as it is emailed, even if it ends up in your spam folder, which could have a catastrophic consequence in the event of a lien sale. Please consider this before switching solely to email. If you are going to use email, the Statue provides that the Rental Agreement “shall contain a section outlining the rights and duties for each party, regarding the use of email”. Thus, before you can even begin to send your Default Notices by email, a Rental Agreement modification is required.

If you are a client of this office, there are certain changes that need to be made to your Rental Agreement as soon as possible to comply with the new Statute, to take advantage of some of the new benefits under that Statute and, if you wish to use email to take advantage of that benefit. Please contact us at your earliest convenience. If you are not a client of this office, please contact your own legal counsel to discuss the mandatory changes that need to be made to your Rental Agreement by July 1, 2019.

Jeffrey J. Greenberger is a Partner with the law firm of Greenberger & Brewer, 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.

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