With the economy in such rough shape we are finding an increasing number of lawsuits filed against self-storage owners and operators. This is not a coincidence. It is a simple fact that when the economy struggles people look for other ways to make money and are much less forgiving of small losses that they would have not previously fussed about. We see it everywhere – restaurant diners are less satisfied, more claims for damages are made at drycleaners, and valet parkers. We see claims against banks, apartment communities, and home builders on the rise. It is only natural then, that you face a greater risk of complaints, demands for mediation or arbitration, and lawsuits in your self-storage business as the economy continues to weaken and times get tougher. Additionally, in the self-storage world there are other factors that make these times so risky; with the increasing number of foreclosures and evictions people are losing, by virtue of foreclosure (or tough economic times, giving up) their homeowners or renters insurance, which would otherwise pay for some of these claims. Also, many self-storage owners and operators are cutting down on employees, deferring or making “temporary” repairs to the facilities and equipment that normally provides some deterrent to theft and damage such as alarms and gates. This is the perfect storm, more claims and greater risk is taken.
While there is not much you are I can do to turn the economy around quickly, I can recommend some ideas to protect yourself better. While it may seem like bad timing, this is the most important time to review and update your rental agreement to provide some of the safeguards that you legally can give yourself to fend off or minimize these types of claims. I want to highlight six areas you should be reviewing in your rental agreements to make sure these provisions are not only in existence, but well written solid provisions that apply to all of your existing occupants. Yes, it is also time to make sure that you have an updated rental agreement that actually applies to everyone, even your 10 year occupant.
1. Make sure you have a valuation limit in your agreement and, if appropriate a limitation of liability clause in your rental agreement. A limitation on value requires that the occupant agrees that there is a maximum value to the stored property in the storage unit. You are not, by this clause, necessarily agreeing to provide insurance or be responsible for that amount of value or even agreeing there is a value. Rather, if there is a claim later you will know the maximum dollar figure that the occupant can claim against you. This goes hand-in-hand, in some states where permissible, with a limitation on liability. The limitation of liability figure may even be lower than the value limit. While you may say the value limit is $2,500.00 or $5,000.00, in many states you can say you will only be liable in the event of a loss for up to $1,000.00, as an example. In some states a liability limitation may not be an enforceable provision but a value limit is always enforceable, if properly written. Remember that in order for a claim to be valid and result in a potential judgment against you, several things must be present: (a) There has to be a loss; (b) you have to have done something negligent, willful or intentional, to have caused the loss; and (c) damages must have occurred. Those damages must be demonstrated in a trial. If the value limit and the liability limit are set low enough it will often not be worth the occupant’s time, energy, or money to bring a claim.
2. Military status. If you do not ask somewhere in your rental agreement whether or not the occupant or any member of his/her family is in the military and, if so, list some additional contact information, including the commanding officer’s name and phone number, you are setting yourself up for a lawsuit. While we do not have space in this article to discuss the entire Service Members Civil Relief Act (“SCRA”), suffice to say that if you are not familiar with the terms of the SCRA and you are conducting lien sales, you are risking an unnecessary lawsuit. The SCRA imposes upon you duties to act in a certain manner that may be different than with a normal occupant if you know your occupant or a family member of the occupant is in the military and serving overseas. The SCRA is a notice statute; you have to have notice of military service. If you have never asked this question, you have missed your opportunity to be on notice of military service. Before you think it is better not to ask and keep you head in the sand, that is incorrect and not a good defense if an action is brought. If you doubt me and have time Google the stories about Patrick Rogelin in St. Louis, Missouri. Military occupant sales are problematic, from a litigation and a public relations standpoint. The simple solution is to ask about military status and deal with it if need be.
3. List your actual charges and fees. I cannot tell you how many rental agreements I am sent to look at every year that lists a late fee, sometimes even more than one late fee (this is problematic – see ISS 4/2001), NSF fees, and certified mail fee. When I interview the operator he or she is also charging other fees, which in most states are probably legitimate. Fees such as overlock or lock cutting fees, and/or actual charges for advertising and other costs of sale. While the statute in your state may permit these charges, contractually you need to list, if not the actual charges, at least provide notice of the charges that the occupant stands to incur during the term of the rental agreement. In New York, this is simple, by Statute you must itemize all of the mandatory and optional charges. In other states you should still be listing these charges. Do not give a judge the opportunity to say you are not entitled to a charge or, worse, that you sold but you should not have sold because you would have been paid in full had you not imposed certain charges that you were not permitted to collect because they are not listed in your rental agreement.
Tied hand in hand with listing actual charges, make sure that you have a default clause that declares all events of default. Obviously, major default issue is non-payment of rent, but I bet there are other grounds under which you would want to terminate the rental agreement. As a matter of fact your rental agreement probably lists, in various places, other prohibited activities, such as: working on automobiles; manufacturing; living in the unit; and keeping animals in the unit. While these are defaults, you should have a clause that the judge can easily look at, if necessary, and say you violated clause “X”, and pursuant to clause “Y”, that is an event of default and the operator has the right to terminate the rental agreement. Further, the default clause should be followed by a remedies clause, making sure you have given yourself all of the various rights you want in self-storage operation. While over locking and eventually selling, if necessary, in the event of a non-payment default is provided by statue, what other remedies do you want to have available if the occupant is constantly leaving garbage at or around the facility? Can you overlock and sell for bad behavior?
4. Make sure your release of liability clause is strong and covers all events from which you want to be released. I often see releases for certain types of damage to stored property. The release clause should be more encompassing to cover loss or damage to property from any source or cause. In some states you may not be able to disclaim liability for your negligence; this is a discussion to have with your attorney as you are re-writing this clause. Make sure you are also getting a release of liability for injury. Sometimes the claims brought are not so much about damage to the stored property, but the slip and fall, and/or a finger caught in the door spring kind of claims. Most release of liability clauses I see do not cover personal injury.
5. Make sure to have a mediation clause. The more we find about arbitration the less we recommend it. However, a mediation clause gives you the opportunity to meet and hear the occupant’s side of the story and gives the occupant an opportunity to hear your side of the story with a neutral third party between the two of you before litigation gets a chance to start. One of the best things you can do to avoid a bunch of nuisance claims this year is to have the opportunity to mediate them before they go to court. If you do not mediate and are sued, you will need an attorney, end up doing discovery, filing other pleadings, and generally running up attorney fees. Then after you have paid the attorney you will be letting a judge, who knows very little or nothing about the world of self-storage, or worse a jury, make a decision about whether you owe money to the occupant for something that was not your originally responsibility.
6. Finally, are you storing vehicles? Are you sure you are not? Even my clients in cities like Manhattan with multi-story buildings are storing vehicles. They may not know it, but there are motorcycles or A.T.V.’s in their units. Vehicles and vessels, particularly in outdoor storage, but in any storage situation are a storage relationship with specific, different issues. In indoor/enclosed storage, if you are not making the “ask” up front about if the occupant intends to store a vehicle within a unit; you are making a huge mistake. There is a lot of additional information, you need to gather about a stored vehicle, including title, registration, lien holder information and insurance. The problem is if you do not ask, then you do not know, and if there is a loss you will be hard pressed to prove that there was not a vehicle in the unit. Also, if you have a default with a vehicle in the unit and you do not have all of this information your lien sale or other remedy is going to take a much longer time to complete.
In short, while times are tight, and while I do not want this to be an ad for your local attorney, one of the best investments you can make with scarce resources is to sit down with your attorney and get your rental agreement reviewed, and if necessary, tuned up, modified, or re-written. A small investment in your rental agreement not only will substantially reduce your risk of frivolous litigation, and in the event of litigation substantially cap the amount of the claim, but it will also help you be ready to move to the next level of your operations when the economy improves.
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 jjg@kgnlaw.com, 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.