Evictions and Auctions: Limiting Your
By David Wilhite
The self-storage business is a rental business. That is to say, the self-storage owner rents out space for storage purposes to tenants; he does not store the property of customers. He acts as a landlord, not a warehouseman. Like any good landlord, the self-storage operator's goal is to keep occupancy high and retain his tenants. Unfortunately, sooner or later he will be faced with the task of evicting a tenant for failure to pay rent, then have to reclaim the storage space and remove or dispose of the tenant's property. The most common way to do this is to place a lien against the property and hold an auction to dispose of the goods.
In general, most states give self-storage operators extraordinary leverage against delinquent tenants. Nearly every state has specific statutes that govern the sale and disposal process, as provided for in the state's Self Service Storage Facility Act. However, if the procedures are not followed to the letter, or if there is an error in any step of the sale and disposal process, the self-storage operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods. Even when the process is handled correctly, it is not uncommon for a disgruntled tenant to file a claim against the operator charging negligence in the removal or disposition of stored property.
Sale and disposal legal liability insurance is an important coverage that is specific to the self-storage industry and should be considered an essential part of every self-storage owner's business insurance package. Sale and disposal legal liability coverage provides self-storage operators with protection against conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. Due to the incredible diversity of goods commonly stored and the wide range of values of the property, the penalty for conversion can be extremely high.
Recently a self-storage operator was held liable for $250,000 in damages by a California court for the wrongful sale of a customer's property. The court judged that the storage owner's notice of intention of sale was defective, since the operator's newspaper ad did not include the delinquent tenant's name, which was required by state law. The court ruled that the operator was in violation of negligence and conversion as a result of this error.
Many such lawsuits are the result of trivial errors, such as reversing the numbers on an address. The chance of an error occurring is compounded by the fact that most state statutes generally require that several letters of notification be mailed to tenants with delinquent accounts, and that the self-storage operator publish a legal notice in a general circulation newspaper in the judicial district where the sale will be held. There are, of course, many variations by state on these procedures, and each must be followed to the letter to minimize the likelihood of a lawsuit. It pays to be careful! A trend appears to be developing in which storage operators who make minor violations of state statutes can be held liable for very large punitive and emotional damages--far in excess of the actual value of a tenant's stored items.
The good news is, in most cases lawsuits can be avoided. If you are a self-storage operator involved in sale and disposal, you must be aware of lien law. Consult with an attorney about preparing a written procedure that outlines the exact steps for disposing of a delinquent tenant's property. Read and follow all state statutes explicitly. Always double-check names and addresses, and don't make any changes to information on the rental agreement, such as correcting an obvious misspelling, unless accompanied by a signed change of address card.
Document, in photographs and writing, every step of the inventory and auction process. In a lawsuit, you will have to show proof that the disposal of the delinquent tenant's goods conformed to state statues. And if there is any reason to question the sale and disposal of a tenant's goods, don't do it. Many owners prefer to let tenants retrieve their property at no charge, rather than go through the potential liability of an auction. (It is certainly preferable to defending yourself in a lawsuit.) Last but not least, be absolutely certain you have adequate insurance coverage.
Sale and disposal legal liability insurance is not normally available through regular business insurance carriers and generally cannot be added to a standard business owners policy. However, the coverage can be secured through insurers specializing in the self-storage industry. No matter how large or small your self-storage facility may be, securing adequate coverage is essential for protecting your business and your peace of mind.
David Wilhite is marketing director at Universal Insurance Facilities Ltd., which offers a complete insurance package specifically designed to meet the needs of the self-storage industry. For more information, Universal may be contacted at Box 5400, Scottsdale, AZ 85261-9957; phone (800) 844-2101; fax (602) 970-6240; Internet http://www.vpico.com/universal.