LEGAL PERSPECTIVES

It's almost impossible to imagine effectively running a self-storage business without equipment like telephones, computers, special accounting software and maybe even an access-control system. But what actually prevents you from renting to a tenant who will use his unit for unsavory purposes?

Lets face it, criminal types will invariably plan to break into occupied units, brew methamphetamines or stalk your legitimate tenants for illicit reasons. Is it really wise to let people move into your multimillion-dollar investment without knowing who they are? Thats why the next must have in your office is online screening.

Screening means different things to different people. Well focus on screening prospective tenants for bad criminal histories, but dont forget you should also screen employees who have immediate access to Social Security numbers, credit card numbers, drivers license numbers and your money.

Criminal Checkup

Criminal screening involves running a tenant applicants name in certain databases. The reporttypically generated instantly over the Internetshows whether your proposed tenant has been convicted of various crimes. Screening also prevents you from renting to someone on a government watch list, which includes terrorism suspects.

Screening identifies a predefined list of crimes for which the proposed tenant has been convicted and whether any charges are pending. Crime reports are pulled from whatever counties or states you desire. Some screening companies merge your list with their report so all you get is an accept, review or reject screen. Other services require you to manually apply your list of crimes against their report to determine acceptance or whether more research is necessary.

Why should criminal screening be important to you? In addition to state and local convictions, screening services will automatically check your tenant against federal-watch lists, the most important of which is from the Office of Foreign Asset Control (OFAC). Should you happen to rent to someone without screening and he was on the OFAC list, you would have actually committed a crime.

The bottom line is this: If for a small sum of money you could instantly know whether a proposed move-in had been convicted of a crime, would you pay the fee? The knowledge could help you protect your investment and other tenants. A screening makes good sense.

Should Have Known

Your lawyer has spent a lot of time drafting a lease to protect your interests. But some attorneys are trying to get around self-storage leases. For example, theyll claim a loss occurred because someone you rented to is a career drug dealer, and you should have known because the tenant had 10 prior convictions of brewing methamphetamine.

This is an argument based on reliance and while such cases havent yet taken hold, its likely only a matter of time before someone makes one stick. And then a court may rule it was reasonable for your facility to screen tenants, similar to legal expectations for apartments and other real estate rentals. Essentially, the courts will maintain you should have known more about your tenants than whether they had the first months rent.

What are most facilities doing? Well, my clients who screen for criminal backgrounds are generally refusing to rent to people convicted of crimes involving violence, sexual menacing, assault and molestation. Other red flags are certain theft, embezzlement, larcenies and felony offense involving drug use. These folks are excluded from renting.

Safeguarding Records

And heres one more caveat about screening: Just like any other record you generate about tenancy, background reports may have personally identifiable information about the applicant. Given the substantial rise in identity theft, records must be adequately protected; your accounting and screening software should encrypt any data, and hard files must be properly stored and locked.

Tenant files should remain in a locked file cabinet or scanned to a hard drive and the originals stored offsite. The cabinet should be locked unless the manager is in the office or needs to be in the files. There simply is no reason a weekend or break employee really needs to be in tenant files if you have an adequate computer system.

When the tenancy has been completed, the renters file should be properly removed, stored for the period of time determined by your company, and then responsibly destroyed. This doesnt mean thrown into the Dumpster; it means shredded or otherwise made illegible and unrecognizable.

The No. 1 thing stolen from self-storage facilities these days is computer hard drives. There is more value on your hard drive, particularly if your data isnt encrypted, than anyone could steal from every unit in the facility.

The same is true of your tenant files. A prying employee, tenant or thief with access to your records, particularly the screening reports you may run, could hit pay dirt by stealing identities and ruining credit. If you suffer a breach such as this, youll likely be required to make disclosure to all the people potentially affected. What a public relations nightmare for your facility. Do you really want the evening news with a mini-cam in front of your sign discussing how thousands of peoples identities may have been compromised because you did not lock your file cabinet or protect your records?

This is also why you must destroy records when no longer needed. Recently a local TV news station had a field day diving through pharmacy Dumpsters fishing out discarded prescription labels, prescriptions and health-insurance information that wasnt properly shredded or destroyed. The news station even went so far as to order someone elses refill of Oxycontin information obtained from the trash pile. Again, thats not the news story you want told about your self-storage facility.

New World

Screening has become a necessary component of the self-storage world, and more and more facilities will begin complying with the federal law as they become aware of it. You have many tools at your disposal to guard against renting to professional thieves, drug manufacturers, rapists and the likeso use them.

Whether or not you implement screening, you should immediately begin a review of your documents-handling procedures. Is your software up to date, does it encrypt credit card numbers, drivers license numbers and Social Security numbers? Are your tenant files containing the same sort of information properly locked and under control of only the most trustworthy of employees? Are your employees properly screened for a criminal history?

And what is your policy for handling a file once tenancy has ended? How long do you hold onto it and is it in a secure place? What are you doing to make sure youre not making this information available to a thief by simply throwing it in a dumpster?

Sharpen your awareness and youll be well on your way to protecting your facility, your profits, and your most valuable asset: tenants. 

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati; his article is for general informational purposes and shouldnt be substituted for the advice of your own attorney. His new website, www.selfstoragelegal.com, contains his legal opinions and insights into the self-storage industry, as well as an article archive. Mr. Greenberger is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. You may send questions, comments or suggestions for future topics to [email protected]; or call 513.721.5151.

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