Modernizing the Self-Storage Rental Agreement: A Facility Operator's Guide to Executing Small and Large Changes (and Ensuring They Are Enforceable)
|Copyright 2014 by Virgo Publishing.|
|By: Jeffrey Greenberger|
|Posted on: 05/13/2012|
Given that so many state self-storage statutes have been modified over the last two years, many facility operators have questions about how they can effectively make changes to their rental agreement and make those modifications enforceable. Before revamping your self-storage agreement or adding an addendum, read through these guidelines to ensure you build a solid document and get tenants on board.
When it comes to changing your rental agreement, the first distinction you need to make is whether you’re making large, substantial changes or small, administrative-type changes. Larger changes are those that would change the relationship between you and your tenants. These can include adding or changing value limitations, adding a negligence waiver, or changing your level of liability vis-à-vis your tenant.
Smaller changes, however, don’t necessarily change the relationship between you and your tenants. Rather, they're make administrative or ministerial. The most common example is raising rent. Adding new ways to pay rent (kiosks or online, for example), altering a clause on the disposal of garbage or smoking, or changing a fee probably do not create substantial changes to the operator/tenant relationship. If made without larger changes, these would be handled differently.
Executing Large Changes
Once you've made changes to your rental agreement, how do you implement them with your existing tenant base? Unless there’s something illegal about your existing agreement, something that requires you to update all tenants as quickly as possible, just use your new agreement with all new tenants for several months and allow attrition to do its work.
If you plan to make substantial changes to the nature of your relationship with existing tenants, however, it’s always best to get a new rental agreement signed in person. Sometimes you can just add an addendum to the rental agreement; but at the end of the day, a “wet ink” signature from your tenant, preferably done in your presence, is often necessary.
When it’s time to roll out the new agreement to existing tenants, asking them to sign in person helps to prove they knew about and acknowledged the changes. If you simply mail out the new agreement and ask tenants to sign and return, you take a risk. To encourage participation, consider holding a contest or drawing or offering some sort of incentive, such as a promise not to raise rates for a period of time or to waive one late fee.
For tenants who live far away, you may need to add a notary provision and obtain the tenant’s notarized signature. You may also be able to collect digital signatures online. If you do this, be careful to ensure you can prove it was your tenant’s digital signature. You can do this by requiring a password.
For the few tenants who will not communicate or cannot be found, remember that, for the most part, your rental agreement contains month-to-month terms. At some point, you’ll have to make the tough decision whether to allow these customers to stay on the old rental agreement—which is probably untenable given that you’ve gone to the trouble and expense of creating a new one—or asking them to leave. Once you ask people to leave, their inertia generally subsides and they begrudgingly come in and sign.
A 'Hybrid' Agreement
Depending on the self-storage management software you use and the changes you hope to execute, you may face a "hybrid" issue. For example, I don’t know of any software that can handle two sets of late fees and other charges simultaneously. So even though you may want to phase in your new agreement over a six-month period, all existing tenants will have to be brought up to speed on the new late fees, lien fees and other charges that go with the new agreement so your software can accommodate fee posting with only one set of variables.
In this case, before rolling out the new agreement to existing tenants, abide by the following procedures for making small rental-agreement changes. First, you'll advise existing tenants of any changes to dollar figures or date structures on the new rental agreement. Get their acknowledgement on these small items. Then roll out the full updated agreement later, getting live signatures whenever possible.
Executing Small Changes
Assuming all you need to do is make some minor changes to your rental agreement and you’re not making substantial changes to the operator/tenant relationship, you can simply send a letter to the tenant outlining the changes and disclosing the actual language used in the new contract. You need to give him at least one periodic rental term to indicate if he will accept these changes.
For example, if rent is due on the first of the month, send a notice that says the proposed change will go into effect on the first of the next month. If your tenants pay on an anniversary date, you'll probably need to give them at least 60 days notice to ensure everyone has at least 30 days (one periodic rental term) to accept the changes or reject them and move out.
The notice might read something like, "Effective X date, provision Y of the rental agreement will be modified to provide that late fees will now be charged on the 5th at the rate of $10 per month.” Remember to check your agreement for any language that may lengthen the amount of time you’ve got to give to make a change.
Most important, include verbiage that reads, “Your payment of rent for the next month or term indicates your acceptance to this change(s) to the rental agreement. If you do not agree to these changes, please vacate the premises and consider the lease terminated by (the date stated in the notice).”
Many of you don’t want to chase away business by telling tenants their rental agreement is terminated if they don’t agree to accept a change. However, if you feel the change is important enough to apply retroactively to existing tenants, everyone should be on board. If the change isn't that important, perhaps consider adding it to new agreements only and leave the old ones alone. Eventually, most of your agreements will be updated. Those that remain will be more manageable, and you can communicate with those tenants personally.
Don’t let any of this scare you from modernizing your self-storage rental agreement. Like anything else, these agreements grow old and outdated. With statutory changes and new case law always being delivered, don’t lose sight of important updates that will ultimately protect your business.
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 J. Greenberger is a partner in the law firm of Katz, Greenberger & Norton LLP in Cincinnati, where he concentrates his practice in the areas of commercial real estate with a particular concentration in self-storage industry. He consults with self-storage owners and operators to design and implement legal procedures, policies and other operational issues in most states with a focus on litigation and liability reduction and avoidance. To reach him, call 513.721.5151; visit www.selfstoragelegal.com.