Jul 012009

QUESTION: Is it a good idea to have a minimum bid at any lien sale at our facility?

ANSWER: I am not normally known to be quite so definitive with my answers in these articles but my answer in is particular instance is it is NOT a good idea to have a minimum bid, unless you are located in a state where you are as the Owner are permitted to bid and plan on bidding that minimum bid in the event no one else makes the minimum bid, and even in that circumstance it is not a good idea.

The reason for my fanaticism on this issue is that at the end of the day if you have gotten a unit this far along in the process including in most states, mailing out certified mail; running one or more advertisement in a newspaper of general circulation; and in some states dealing with a declaration of opposition to lien sale; you want this unit sold so that you can empty it or get it emptied and back on the market for rental.

Most of the Owners I have met in my years of this business have no real desire to sell units and, if they are at sale it is only because all reasonable remedies have been tried and failed to get the unit paid up or vacated before sale. Also, by the time you are ready to sell you have incurred substantial costs have a lot of lost revenue to recover. Further, few states have a provision in their statue that tells the Owner or Operator what to do if the unit is not sold, some statues speak to disposal but do not specifically tell you the Owner or Operator that you can dispose of the contents if a minimum bid is not obtained. Thus, one of the safest things you can do at this point in the transaction is have a sale. Most statues provide some protection to the Owner in the form of limitation of liability, if the unit is sold pursuant to the requirements to your state’s statue. Thus, if you have come this far, you want a sale. If you get as far as a sale, and you have a mandatory number of people present etc., any bid will do, while I hope one bid will lead to another bid and will lead to an increase in price multiple times before the unit is sold, in most states, getting one bid out of the crowd is enough for a valid sale which invokes the protections and limitations of liability from your statue.

If conversely, you set up a minimum bid system and no one bids that amount, then what? If you do not sell the unit I can not tell you by state what you are going to do with the property left in the unit. In some states you may be able to dispose of the property in others you can not and you are leaving yourself open to a lawsuit that you may not have sold the goods in a commercially reasonable manner. The minimum bid may have been $100, but if the tenant finds one of the bidders who would say I would have bid $75, the question then becomes, what would have happened after that bid? This leads to tenant to claim that they owe you less money or maybe that you did not sell their goods for full value because you did not allow the bidding to go as low as it needed to go to get started. This is especially true with the operators who open with a minimum bid of a total amount due to the Operator. This is risky because if you do not reach that amount you leave yourself open to interpretation of whether the goods would have sold for $5 Dollars less than the minimum bid and then the argument follows who knows if the bidding had started lower where the bidding would have ended up?

All of you that have been to a charity auction sometime in your life where the auctioneer starts at a number and has to drop down multiple times before the bidding starts, by the time the auction is over the auctioneer has sold it for more than the original call for a first bid. That is the way auctions work and you do not want to set yourself up for that question by your former tenant.

Finally, remember the goal is to get the unit sold and cleared out and back on the market. A minimum bid generally works to your disadvantage unless a the Owner is allowed to bid on the unit and is prepared to bid on the unit to make sure it at least gets sold for some amount of money. I still contend this is not the smartest thing you can do and that you should allow market forces to determine the sale price and if no one will bid a dollar then bid a dollar and be done with it to have completed the sale. If you start the minimum bid high and do not receive it so you have to bid the minimum bid yourself, then you have not really recovered any money at all, have you? Meanwhile such a policy, fails to reduce the tenant’s debt to you and potentially exposes yourself to tenant litigation for your failure to obtain the most value for the sold items.

You can send your questions, comments, or suggestions for future topics to Jeffrey Greenberger at info@test.selfstoragelegal.com or mail them to Jeffrey 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, or visit his website at www.selfstoragelegal.com.

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