D. Carlos Kaslow
Self-storage operators know the importance of a well-drafted rental agreement. This knowledge is either the result of direct experience or from the legions of lawyers who repeat this axiom at every opportunity. However, the importance of the rental agreement should not be underestimated simply because its importance has become an industry cliché.
Articles on rental agreements usually examine contractual provisions designed to protect storage operators from claims of loss or damage to stored property or those required by state self-storage lien laws. In this article, we will examine three provisions that deal with problems confronted by every self-storage operator.
Prohibiting the Storage of Hazardous Materials
First, let's consider hazardous materials. There is a greater potential for a major uninsured loss from a tenant leaving a large quantity of hazardous materials in a storage unit than any other occurrence. Under current federal and state law, self-storage operators are responsible for the cost of legally disposing of hazardous materials discovered on the premises. There have been numerous reports of storage operators who have discovered spaces containing hazardous materials costing $25,000 to $50,000 to legally remove. Six-figure cleanups are rare, but there are one or two events reported each year. One of the largest incidents occurred in the San Francisco Bay Area, where the storage operator incurred cleanup costs exceeding $250,000. The Environmental Protection Agency recently sent the Self Storage Association an advisory concerning individuals who are dumping hazardous materials at self-storage facilities in the Southwest.
A rental agreement provision cannot stop a tenant from dumping toxic chemicals at your facility. However, banks, insurance companies, and building and zoning authorities are now insisting that self-storage rental agreements contain a provision prohibiting the storage of toxic substances. This provision prohibiting the storage of hazardous material does not have to be five pages long. A paragraph along the following lines should be understandable to customers and satisfy the concerns of interested third parties:
HAZARDOUS OR TOXIC MATERIALS PROHIBITED: Tenant is strictly prohibited from storing or using materials in the storage space or on the facility classified as hazardous or toxic under any local, state or federal law or regulation, and from engaging in any activity which produces such materials. Tenant's obligation of indemnity as set forth below specifically include any cost, expenses, fines or penalties imposed against the Landlord arising out of the storage or use of any hazardous or toxic material by Tenant, Tenant's agents, employees, invitees or guests. Landlord may enter the storage space at any time to remove and dispose of prohibited items.
The provision not only prohibits customers from storing or using hazardous materials, but also requires them to indemnify the storage operator for any cost incurred in their removal. Such a provision will not stop the toxic material dumper or drug-lab operator from bringing toxic substances onto your premises, but it may cause your honest customers to be more selective as to the property they store.
Controlling Tenant Access
Simply prohibiting your customers from storing toxic materials on the premises is obviously not enough to prevent your storage facility from being used as a toxic-chemical dump site. Preventing customers from bringing hazardous materials onto your facility is the real goal. Here again the rental agreement can help. Limiting customer access rights to hours when site personnel are at the facility can reduce the likelihood of hazardous materials being dumped there. Consider the following provision:
TENANT ACCESS: Tenant's access to the premises may be conditioned in any manner deemed reasonably necessary by Landlord to maintain order on the premises. Such measures may include, but are not limited to, limiting hours of operations, requiring verification of Tenant's identity and inspecting vehicles that enter the premises.
This provision gives the storage operator a broad right to control customer entry on the storage facility. It specifically permits the storage operator to:
- Regulate hours when entry is permitted;
- Require any person who comes onto the premises to identify himself;
- Inspect any vehicle that enters the premises; and
- Create new regulations, as needed.
Each of these rights is important in today's operating environment. Few facilities in urban areas permit unlimited 24-hour access to the facility. Technological advances in gate-access control have made controlling access far easier than in the past. The right to verify and inspect vehicles is primarily designed to deter persons from renting who may not want the storage operator to know who they are and what they are bringing onto the premises. These rights should be used judiciously. However, site personnel should exercise these rights whenever they see suspicious activity or a covered truck or other vehicles that could contain hazardous materials entering the premises. Remember, the concept of self-storage does not prevent the storage facility operator from controlling his property. A credible threat of inspection can deter a toxic dumper from choosing your facility a dump site.
It's the Tenant's Lock
The last rental agreement provision we will consider deals with locks. At most storage facilities, the tenant is responsible for locking his or her unit. This duty creates two potential problems for the storage operator: tenants often use low-quality locks to secure their storage units, and even worse, they frequently don't lock the storage unit. A "Locks" paragraph can help with both these problems.
LOCKS: Tenant shall provide, at Tenant's expense, a lock that Tenant deems sufficient to secure the storage space. Landlord may, but is not required to, secure any storage space that is found unlocked.
This provision places the responsibility for determining the type of lock to be used solely upon the tenant. Most storage facility managers encourage their customers to use quality locks, but leave the final selection to the customer. This provision is designed to prevent later claims that the facility operator may have some responsibility for lock selection.
The second sentence gives the facility operator the right, but not the responsibility, to secure any space that is found without a lock. What should storage operators do when a rented space is discovered without a lock? The best course of action is to secure the space and contact the customer. Some storage operators are reluctant to do this because of the fear that they assume care, custody and control over the storage space and therefore greater liability if they secure the space. While there is a possibility that securing a storage unit with a company lock may increase the facility's exposure to a lawsuit for loss or damage to the stored property, we believe it is a risk that is usually worth taking.
A California case, Sackett v. Public Storage Management (222 Cal. App.3d 1088), examined this very issue. The court held that a storage operator who secures an unlocked space incurs no additional liability by taking a step that primarily benefits the tenant. Whenever a space is found unsecured, the storage operator should always notify the customer by telephone and in writing.
Storage operators who are reluctant to have direct access to a customer's storage unit may want to secure the storage unit with a lock and mail the keys to the tenant's last known address. If the keys are returned by the post office, the sealed mailer is held in the office until the tenant returns. This approach allows the storage operator to secure an unlocked storage unit without having access to it once the keys are mailed to the tenant. It should also eliminate any contention that the storage operator has taken control over the tenant's space.
Controlling Your Self-Storage Facility
The rental agreement should state the scope of the tenant's and the storage operator's rights and responsibilities in the use of the storage facility. Each of the three provisions is designed to give the storage operator more control over his property. They limit tenant's-use rights and permit owner action but are consistent with the basic landlord/tenant relationship. Placing reasonable restrictions on customers' use of the facility has become a critical element of premises management given the vulnerability that storage operators have to dumping of hazardous materials and failure of some customers to act responsibly. These three provisions have proven to be useful in providing storage operators with some protection from the occasional malicious or irresponsible tenant.
D. Carlos Kaslow is editor of The Self Storage Legal Review, a bimonthly newsletter on legal issues pertaining to the self-storage industry. For more information or to obtain a subscription, contact Mr. Kaslow at 2203 Los Angeles Ave., Berkeley, CA 94707; (510) 528-0630.