What Would You Do? Common Self-Storage Legal Conundrums
|Copyright 2014 by Virgo Publishing.|
|Posted on: 03/01/2013|
The following is part of an exciting 2013 content series titled "What Would You Do?" ISS asked managers and owners how they would react in difficult situations that can arise at any facility. We then asked experts to advise on their recommended course of action. To see all articles and slideshows in the series, enter code WWYD13 in the search box at insideselfstorage.com. The complete sequence will roll out over several weeks and be available in full by March 10, 2013.
Legal quandaries are among the biggest headache producers for owners and managers of self-storage facilities. Some operators simply aren't familiar with industry and state legislation; others don't understand it. Even when they are and do, the laws can change, and you can't always predict how they'll be interpreted by customers, judges and juries.
When it comes to legal issues, you can't put your head in the sand. They affect you daily, from the rental agreement you provide to customers, to the procedures you follow for unpaid rent, to other sticky scenarios such as tenant bankruptcy, tenant divorce, law-enforcement inquiries and others.
Do you know what to do in the face of legal risk? Is what you would do the same as what you should do?
Inside Self-Storage recently reached out to in-the-field operators to learn how they would proceed in specific but common situations that could happen any time at any facility. They were asked, "What would you do if ..."
The answers were provided by members of Self-Storage Talk (SST), the industry's largest online community. We then asked two of the industry's top attorneys to tell us what operators should do in each case. Our well-known experts are Jeffrey Greenberger, a partner in the Cincinnati-based law firm of Katz, Greenberger & Norton LLP, and Scott Zucker a partner in the Atlanta-based law firm Weissmann Zucker Euster Morochnik, P.C.
What would you do if you found illegal, inappropriate or personally identifiable items in an abandoned or unpaid unit?
SST senior member geraldine1051 (who wishes to remain anonymous) says she would simply call her attorney, but Richard and Beverly Haessler (RichardandBeverly), resident managers of Park Inn Storage in Odessa, Texas, indicate it would depend on the items. For example, if the goods were illegal, they would call the police; but in the case of gas or propane, they would simply dispose of it. When discovering personally identifiable items like documents and records, they would try to reach the owner of the goods.
What SHOULD you do?
Greenberger: Any illegal goods found in the unit must be reported to the police. What constitutes "illegal" can depend on your state but generally includes drugs, drug-manufacturing supplies or equipment, explosives and other caustic chemical agents, child pornography, stolen property, and any evidence of foul play including bodies or body parts. In most states, it will include guns.
Because you could be interfering with a criminal investigation, never dispose of, remove or even touch any property that appears to be illegal until the proper authorities have seen it and given you clearance to proceed. If it turns out not to be illegal, it should be properly sold (if saleable), or disposed of via shredding or some other method.
Personally identifiable items are a different issue. If there is one thing legislators and citizens alike resent about self-storage, it's that personal information can inadvertently end up in the wrong hands. Several states, such as Arizona, Maine and Rhode Island, have addressed the problem by making sure such information is offered to the proper governmental agency for seizure or properly discarded/destroyed. The simple answer is, anything that appears to contain personal information, whether about the tenant or someone else, should be properly disposed of by the facility operator and should never end up in the dumpster or sold.
Also, no property from an abandoned unit or sale should ever end up in the possession of facility owners or employees. A wrongful-sale or disposal lawsuit is possible with any former tenant at any time, and the last allegation a defense attorney wants to face is that some or all of the property ended up in the hands of facility staff. It adds a whole new layer of trouble to an already crummy situation, especially if the property turns out to be illegal or inappropriate. The best course of action is to properly sell or dispose of all items as quickly as possible.
Zucker: Certain types of items require special handling and should not be included in the sale. These include vehicles or vessels subject to DMV registration and requiring DMV title clearance, firearms, alcohol or controlled substances, human remains or ashes, and illegal items or contraband. Some states have special restrictions on the transfer or disposal of individuals' personal papers, documents or records. In those states, the facility owner and any auction buyer must agree to handle any such items in accordance with the laws of that state, including but not limited to the requirement that all such items be promptly shredded or disposed of in a way that makes such personal information unreadable.
Typically, the facility owner will announce at the auction that he will take back any such items for proper handling, provided the buyer calls such items to the facility owner's attention in a prompt manner. There are instances in which the buyer will fail to disclose the presence of certain items in the unit. In this case, there's no liability to the facility owner, since only reasonable inspection is required (boxes do not need to be opened), and the owner has no ability to control the actions of the buyer, who may fail to comply with the auction rules.
What would you do if a tenant altered the rental agreement before signing?
Again, geraldine1051 indicates she would call her attorney, while the Haesslers say they would refuse to rent to anyone who altered the agreement. SST member MRV (full name not provided) has never allowed someone to rent who wanted to alter the basic agreement. "We do have an addendum page, but we have to sign off on it in order for anything on it to be valid," he writes.
What SHOULD you do?
Greenberger: As the facility owner or owner's agent, you should inspect every rental agreement to ensure it hasn’t been changed in any way by the tenant. The attorney who drafted your agreement included specific clauses for precise reasons. While certain factors may be negotiable, such as rate, terms, security deposit, etc., those spots are normally left blank in the lease to indicate these are variables. Other than that, you should not accept any changes to the rental agreement.
If you're the facility manager, you're not authorized to sign such a change on behalf of ownership. Even if you're the owner, you don't want a change to any clause of the lease because it might have a domino effect on the rest of the agreement. You may think a change is innocent enough, but often even the smallest alteration can have a detrimental “carryover” effect on other clauses that may be much more important.
If for some reason you sign the rental agreement and then notice an alteration, you should a) give notice of intent to terminate the lease as soon as possible at its next renewal date (the amount of time you have to give is generally defined by your rental agreement, and you may have to wait a full month), or b) send a letter stating that the rental agreement will be changed back to its original text at the next renewal date so as to avoid having to terminate the tenancy.
Seek some assistance from your attorney with this letter, but generally, it would say the provision the tenant modified will be changed back to the way it was originally written. It will then restate the original clause(s) and notify the tenant that payment of next month's rent indicates his acceptance of the change. This gives the tenant the opportunity to move out if he can't live with changing the agreement back to the way it belongs, i.e., the way you wrote it.
Zucker: Generally, self-storage rental agreements are non-negotiable, meaning the tenant is not permitted to change any of the standard terms of tenancy. Certainly, managers are given latitude to address rental rates, but they are not typically allowed to accept revisions to the central issues addressed in the lease such as the non-bailment, insurance or limitation-of-value provisions.
There are circumstances in which the facility operator may be willing to negotiate certain terms, especially where the tenant agrees to rent multiple units for an extended duration of time. But generally, you want consistency between all tenants. Therefore, if a tenant attempts to change the terms of the document (for example, strikes a paragraph), such a change should not be accepted.
I strongly recommend that self-storage operators use multi-part paper to create a copy of the signed lease, or copy the signed lease and retain the copy in their files, to avoid future disputes over what the “final executed lease” may look like (especially to avoid claims that changes were made and approved by the owner).
What would you do if your state updated its lien laws?
According to the Haesslers, Texas updated its lien laws last year. They got all their tenants to visit the facility and sign a new lease. MRV says his state changed its laws a bit, but the provisions didn't require a new contract to be signed by existing tenants. He didn't even have to update his existing rental agreement. Geraldine1051 would take it to her attorney again. It's a safe bet!
What SHOULD you do?
Greenberger: This depends on your rental agreement. Many attorneys draft rental agreements years in advance of statute changes to anticipate certain improvements. For example, I've taken out references to Certified Mail in rental agreements for years so operators are not obligated to send Certified Mail if their statute is changed to make it superfluous.
You'll need to meet with your attorney as quickly as possible after the statute changes to determine the effect. Sometimes the result is minimal on the rental agreement but significant on lien-sale activities. A change in your statute is not the time to be pennywise and pound foolish. Speak with your attorney about changes that may be necessary to the rental agreement as well as your lien-sale and other operational protocol.
Typically, there's some advance notice that a change of some form is coming, either because an industry group sponsored the change or because industry watchdogs are looking for potential changes that might affect the business. This is a great reason to stay in touch with your state association and various publications and websites: to make sure you are aware of legislation that might affect your operation.
Zucker: Self-storage is somewhat unique in that each state, except Alaska and Nebraska, provides statutory provisions that explain what self-storage is and is not and the rights of the facility owner should a tenant fail to pay rent. One of the greatest liabilities for operators is failure to comply with the laws that govern their operation.
What's fascinating to watch is the rapid spread of legislative revisions being motivated and spearheaded by the national and state self-storage associations.
Because of those ongoing changes, it's more important than ever for operators to stay aware of updates and revise their leases and lien policies accordingly. Any sale conducted in violation of state law could constitute a wrongful sale. Bottom line: If you’re in the self-storage business, you need to know your current state law and stay tuned to any modifications that may occur on a yearly basis.
To read more great content in the ISS "What Would You Do?" business-challenges series, type code WWYD13 in the search box at insideselfstorage.com.