First, avoid self-help remedies to such problems. Failure to research tenants’ rights may expose you to liability for conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. If a tenant believes you did not properly follow the eviction and disposal process, your storage operation can be held responsible for the value of his property. Damages may include payments for emotional distress and the tenant’s attorney fees. Owners can reduce the risk of conversion claims by reviewing their state’s lien laws with an attorney and following statutes accordingly.
Due to the incredible diversity of goods stored and the wide range of values of property, the penalty for conversion can be extremely high. Not long ago, a self-storage operator was found liable for $250,000 in damages by a California court for the wrongful sale of a customer’s possessions. The court ruled the storage owner’s notice of intention of sale was defective, since his newspaper ad did not include the delinquent tenant’s name, which was required by state law. The court ruled the operator was negligent and guilty of conversion.
Most states give self-storage operators considerable leverage against delinquent tenants. Nearly every state has specific statutes that govern the sale-and-disposal process, as provided for in the Self-Storage Facility Act. However, if the procedures are not precisely followed or there is an error during any step, the operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods.
If you are operating in a state in which a statute has been enacted, follow the Self- Storage Facility Act guidelines and state lien laws to the letter. If you are operating in a state with no statute, seek the aid of a legal advisor to include a clearly worded statement in your rental agreement. It should assert that you are a landlord renting storage space to tenants; that neither you nor your employees exert any care, control or custody over a tenant’s property; and that responsibility for stored property remains vested with the tenant and not the landlord.
Even when the sale-and-disposal process is handled correctly, it is not uncommon for a disgruntled tenant to file a claim against an operator. Case in point: A self-storage facility paid a former tenant a $130,000 settlement for auctioning off his sports and music memorabilia after he failed to pay rent for several months. Before the auction, the operator tried to reach the tenant by certified mail as required by state law.
The tenant claimed he never received the notification letters and thought his accountant was paying the rent. Even though the case had been settled with no admission of guilt on the part of the storage facility, the company’s insurance had to pay the hefty settlement cost. Sale-and-disposal legal-liability insurance is an important coverage that should be considered an essential part of every self-storage owner’s business-insurance package. Although it is not normally available through regular insurance carriers and generally cannot be added to a standard policy, it can be secured through insurers that specialize in self-storage.
However, basic coverage is not enough. Underinsuring a facility for sale-and-disposal legal liability is an expensive risk. The cost of liability coverage is relatively low compared to potential claims. Storage owners may want to review their limits with an insurance agent to ensure coverage fits the size and scope of their operations. A large operation with many units should obviously have more coverage than a smaller facility.
Even if your policy is not up for renewal, it is worth looking at this area of coverage to determine if your aggregate is sufficient. An aggregate is the annual limit the insurance company will pay out for claims. If your limit is $500,000 per year and you have multiple or large claims that exceed that amount, you will likely be held responsible for payment, putting your assets at risk. If a facility is uninsured or underinsured for sale-and-disposal legal-liability risks, an insurance agent specializing in self-storage can review and offer higher limits of protection.
Amy Brown is part of Universal Insurance Facilities Ltd., which offers sale-and-disposal legal-liability coverage as part of its extensive self-storage insurance program. Universal provides coverage against loss or damage to stored property and protects against claims arising from the sale, removal, disposal or disposition of delinquent customers’ goods. The coverage also provides for defense and legal costs, even if a customer’s suit is groundless or fraudulent. For more information or a free copy of your state’s lien laws, call 800.844.2101; e-mail firstname.lastname@example.org.