By Jeffrey Greenberger
Many self-storage operators offer the use of a truck at move-in as an incentive to prospective tenants. There are certain pitfalls and issues of which owners should be aware before deciding to offer this service. This column does not discuss whether you should offer trucks from a national rental company such as U-Haul, Budget, Penske, etc., but whether you should make a rental truck available to your tenants. The most important issues to consider are how to handle promotions, liability and insurance.
What Are You Offering?
One of the most important issues involved in offering truck rental is clearly defining what you provide. I am reminded of a story industry-consultant Jim Chiswell uses as his cautionary tale. Jim discovered one facility’s Yellow Pages ad that read, “Free truck with move-in.” Some smart-aleck went to that facility, rented a space, and started giving specifications for the type of truck he wanted in exchange for his move-in. Therefore, the first lesson is to be extremely careful in how you phrase your truck offer.
The second important lesson is to make sure your rules and regulations regarding use of the truck are clear and in writing, and that you follow your own rules at all times. Because rules apply to the use of the truck, you must include the following statements in any advertising: “Certain rules and restrictions apply. See management/facility office for details” and “This offer is subject to withdrawal or change without notice.” These are basic tenets of any advertising that addresses the issue of truck rental.
Issues of Liability
The problem with the average move-in is people tend to trade beer and pizza in exchange for assistance with their moves. As an owner, you give your truck—which is likely three to four times bigger than anything the average tenant has ever driven—to someone who has probably consumed a six-pack while moving furniture. At the same time, it is impractical and inadvisable to provide any driving instruction; because the more responsibility you undertake to ensure a tenant can drive the truck, the more liability you assume in the event of an accident.
While state law generally says the liability for operation of any vehicle follows the driver, not the owner, there are legal concepts, such as agency and negligent entrustment, any lawyer may raise in a lawsuit to imply the self-storage owner, operator, manager, etc., is responsible for giving the truck to someone who did not know how to drive it or may have been impaired during its use. Therefore, it is important to ensure you have the best possible insurance, with the highest possible limits and the fewest exclusions, to protect yourself and your business.
Follow the rules set by your insurance provider, for example, confirming the operator of the vehicle has a valid driver’s license. Also, the size of the truck you may lend varies from state to state and, in all states, certain truck sizes require a commercial driver’s license. Therefore, make sure the truck you have purchased or leased is legally operable by someone with a standard automobile license.
Unfortunately, there appear to be few companies that will insure rental trucks on behalf of self-storage operators, even though the liability follows the driver. Nevertheless, insurance is available and, as long as you can afford its costs (plural intended), you should generally be well-protected.
When shopping for insurance, you will need to ask the following questions: What type of documentation does the insurance company require you, the operator, to review and keep about the driver? Does the insurance company require a photocopy of a driver’s license, motor-vehicle background check and/or proof the operator’s license is in good standing with the Bureau of Motor Vehicles? By the way, these issues become extra-complicated when you are dealing with tenants from out of state.
You also need to understand how insurance deductibles apply. There may be more than one. The deductible normally applies to the collision-damage portion of a claim. Most insurance is set up similarly to that of a car-rental company, which has insurance to protect itself from liability arising from operation of the vehicle, including damage to property and injury to others.
A second component of the insurance covers collision damage to the actual rented vehicle. This coverage is designed to be secondary to the driver’s personal automobile insurance; but unlike with a car rental, it appears approximately 90 percent of all personal auto policies now exclude collision and/or liability coverage when the insured rents or operates a truck. Therefore, the secondary insurance coverage you think you are buying for the operator/tenant often becomes the primary collision insurance, even if the tenant has good, valid automobile coverage for his own car.
What does this mean to you? There is a deductible that applies to these collision policies. You certainly should be aware of it, because at the end of the day, if your tenant causes collision damage to the truck, the first some-odd dollars in repairs (whatever the amount of the deductible) must be paid by your tenant before the insurance will cover any portion of the claim. If the tenant is not solvent enough to pay for that damage, the responsibility falls back on you. It becomes your problem to recoup this money from the tenant.
If the truck is a complete loss or severely damaged, the collision coverage will cover its replacement or repair, minus the deductible. If the tenant cannot pay the deductible, you will have to. Then there is the $300 damage to a side panel, $500 damage to the roof and $850 damage to the lift-gate that quickly become your expenses if the tenant is not willing to pay. This has caused many operators to become creative in their policies regarding “free truck use at move-in.”
Some operators charge an insurance premium in the form of a “collision-damage waiver” to reduce (not eliminate) the tenant’s alleged collision deductible. In theory, this fee builds up a reserve against which you can pay for damages caused by tenants who are unable or unwilling to pay. Keep in mind: This may be the unlicensed sale of insurance. An operator should check with his own legal counsel and insurance broker to determine if this plan is possible.
Other operators have changed their policies so their truck rental is free for a limited number of hours, then they impose a per-hour rental charge. Usually, unless a large-dollar lease is being signed, the free period is two to four hours, which is often insufficient for the job. In this case, the truck provides revenue in hourly charges, which helps defray the costs of the insurance, loss and damages.
I discussed this column with Kirk Nash of Texas-based On The Move Inc., a supplier of trucks and insurance for this type of business. Nash says 90 percent of collision-damage claims actually result from operation by the facility owner or managers or their family members, not tenant use.
Because employees are accustomed to driving the vehicle—unlike novice tenant drivers who are cautious—they tend to be more careless. The majority of damage they cause is to truck roofs and sides; therefore, operators must be certain the collision policy they purchase does not have exclusions for damage that occurs from problems with height or width clearance.
The standard insurance policy from a company such as On The Move provides $5 million worth of liability coverage for damage or injury to property or people while the vehicle is being used by a tenant. This insurance solely protects the owner/operator of the facility. Again, ownership should generally not be liable for injury or property damage; however, it would be foolish not to have coverage for the facility in the event the storage owner is sued and somehow held responsible.
As for collision coverage, the amount you need depends on the value and condition of the truck you are renting or lending. There is no set recommended amount; however, it should be enough to cover the truck in the event it is substantially damaged or lost.
You must understand all the costs involved in lending trucks to tenants. First, you will have a lease or purchase payment on each truck, as well as monthly liability-insurance payments. You also assume the risk of a tenant causing damage for which he cannot or will not pay. Determine whether the cost of these expenses can be absorbed into money received for use of the truck, or if the truck’s marketing value makes it financially viable. From a legal standpoint, as long as you have excellent insurance and follow the requirements of your insurance company, you can provide this service to tenants without too much concern.
Consistency will be the key to success. Every customer must be offered the same terms and conditions of use as any other using the truck. I am not suggesting you cannot run occasional specials; I am saying everyone who qualifies for a special should be subject to the same rules. You must know the requirements of your insurance policy and follow them. Make sure tenants properly complete all rental forms provided by your truck-leasing company or attorney, and that they receive a full disclosure of all costs. If you do all of the above, you should be able to safely lend trucks to your tenants.
This column is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney.
Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self-Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151.