By Scott Zucker
The following was reprinted with permission from the Mini-Storage Law Commentary: A Newsletter for Owners and Managers, published by the law firm Shapiro Fussell Wedge Smotherman & Martin in Atlanta.
As the self-storage industry has grown over the last decade and business has become more and more competitive, so has the number of innovations that are used to differentiate one self-storage company or facility from another.
Just like the development of climate-controlled storage, the industry is now experiencing the development and growth of portable storage. Portable, mobile or "drop-box" storage is where a storage facility offers the delivery of a storage container to a customer's home or office, and the container is packed by the customer and locked with the customer's lock. The container is then picked up and returned to a warehouse where it is placed or stacked with other containers. Certainly this service saves a typical customer from having to rent a truck or hire a moving company to move his property from his home or office to a self-storage facility. With portable storage, the customer is able to remove the transportation concerns involved in storing his property.
However, what is essential to understand is that portable storage is not self-storage. The key to self-storage lies with the lack of care, custody and control that a facility assumes over the property being stored on the premises. Self-storage is based simply on a landlord/tenant relationship where the storage company rents space suitable for storage. Once the tenant stores their property inside the facility, the risk of loss for that property (for the most part) falls on the tenant. The facility need not obtain insurance for the contents of the tenant's storage space because the facility owner is not considered a bailee of the tenant's property.
With portable storage, once the company takes the locked container, places it on the truck and stores it in the warehouse, it has assumed care, custody and control for that property, and a bailment arises. As such, the storage facility now assumes the risk of loss for the tenant's goods, and must insure itself from those losses. Going from a landlord to a bailee changes the level of diligence that is required in safeguarding the customer's property. Whereas a self-storage facility owner may be held liable for the loss of a tenant's goods upon a finding of gross negligence, a bailee can be held liable for the loss of a tenant's goods upon a finding of the lower standard of ordinary negligence.
The Contract Documents
Without question, when a self-storage company ventures into the business of portable storage, it is not as a landlord and, therefore, using a standard rental agreement would not be adequate. A more appropriate document to use comes out of the warehouse industry and would be similar to a non-negotiable warehouse receipt, as that document is defined under the Uniform Commercial Code. This warehouse receipt is a contract between a warehouseman and its customer for the warehouseman to take in the property of the customer, store it, assume liability for its protection and, ultimately, return it to the customer.
What makes a warehouse receipt substantially different from a rental agreement involves the explanation of the facility's liability for loss or damage to the customer's property. With portable storage, a facility can be held liable for loss or damage to the property. Facilities can limit their liability in this area by establishing a maximum limit of value per container that can be stored at the warehouse (i.e., 60 cents per pound per article or $1,200 for all the property in the container.) This is commonly termed the "declared value." Therefore, even though there is potential liability to a facility for loss or damage to a customer's property in the container, limits of value can apply.
A portable-storage contract should include other standard provisions, as well. For example, the facility should recommend that the customer have his own insurance for the value of the contents beyond the $1,200 limitation. The contract should also include a provision prohibiting certain property from being stored inside the container, including collectibles, jewelry or other items having high value or sentimental value to the customer. An additional provision should be added to a warehouse receipt to provide that all claims by a customer for loss or damage to the property in the container must be made within 60 days of the time the customer first becomes aware of the claim. Further, the customer should have only 120 days in which to commence suit on such a claim, or the claim would be deemed to be waived. Finally, the agreement should identify the warehouseman's lien on the property in the container, which allows the warehouseman, upon the customer's failure to pay the rent, to hold the customer's property for sale.
In certain states, those lien rights will be based upon the Uniform Commercial Code, which has a procedure for foreclosure and sale and is very similar to that used in self-storage. In other states, where a container for storage has been included within the definition of self-storage, the state's self-storage act itself can be used as the lien-and-foreclosure process for selling the customer's goods. In some states, the owner's lien is simply contractual, and the procedure for sale would be defined under the terms and conditions of the customer's contract with the facility owner.
Unfortunately, insurance becomes an issue when operating a portable-storage business. Again, contrasted with traditional self-storage, portable storage requires the use of a truck, fork lift and drivers. Therefore, a portable-storage facility needs insurance coverage for the trucks being used to transport the containers and needs to apply a different workers' compensation classification for its employees than may have been used previously for on-site resident managers or maintenance workers.
Most importantly, insurance needs to be obtained for the contents stored on the premises, which changes the coverage requirements for a standard self-storage facility. Certain insurance can be obtained to protect a portable-storage company from customer claims arising from lost, stolen or damaged property. However, exclusions may only provide for coverage in the case of an accident with the truck or clear damage to the exterior of the container.
Accordingly, storage owners should provide restrictions in their contracts that hold their customers responsible for the proper packing of the container to prevent shifting or movement of the property during transportation, and holds the customer liable for any loss, damage or injury relating or arising from the packing of the property in the container. Obviously, obtaining contents insurance not only raises costs for a business, but acknowledges the shift in the risk of loss to the facility rather than the customer. That is a dramatic shift that, once again, does not apply to traditional self-storage and the rental of space.
Clearly, the growth of portable storage means that storage companies have recognized a customer need and have acted to provide that service. However, if a storage company chooses to offer portable storage, it needs to understand that it cannot be a simple extension of its self-storage business, but is a new business altogether, with different responsibilities and liabilities. The key thing to remember from all of this is that when you take the "self" out of self-storage, the rules change, and new rules must be followed.
Scott Zucker is an attorney with the firm of Weissmann & Zucker, P.C. Mr. Zucker, who specializes in self-storage law, is a frequent contributor to Inside Self-Storage and a regular speaker at Inside Self-Storage Expos. He may be reached at (404) 364-4626.