The lien sale is a necessary evil of self-storage operation. Eventually, every owner is faced with the task of evicting a tenant for failure to pay rent and reclaiming the storage space. The most common way to do this is to place a lien against the tenant’s property and hold an auction.
A lien sale can be a minefield of liability. While most states give storage operators leverage against delinquent tenants, if lien-law procedures are not followed to the letter—if there is an error in any step of the sale-and-disposal process—an operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods. Even when the process is handled correctly, it isn’t uncommon for an unhappy tenant to file a claim charging negligence.
Storage owners put themselves at risk by being uninformed about their states’ lien laws. With the exception of Alaska, the District of Columbia, Montana, Nevada and West Virginia, all states have laws detailing the rights of tenant and owner. But even those familiar with state statues can—and do—make mistakes, says Jeffrey Greenberger of Katz, Greenberger & Norton LLP in Cincinnati. “If you’re not a lawyer, it’s hard to read some of these statutes,” he says. “They’re not long, they’re not complicated, but they all have hyper-technical issues. It’s not really complex, but it’s hard enough that people can mess it up.”
The Letter of the Law
Many lawsuits are the result of minor errors, such as transposing the numbers on an address or storage unit. Most statutes require that multiple letters of notification be mailed to tenants with delinquent accounts, and that the storage operator publish legal notice in a general-circulation newspaper in the judicial district where the sale will be held. These protocols vary from state to state and must be followed precisely.
The good news is litigation can usually be avoided. Greenberger recommends consulting with an attorney familiar with self-storage law and having him prepare a written procedure that outlines the steps for disposing of tenants’ goods. Read and follow all state laws to the letter. Always check and double-check names and addresses; and don’t make any changes to information on the rental agreement—even if there appear to be obvious misspellings—unless you get a signed change-of-address card.
Document every step of the inventory and auction process in photographs and writing. Greenberger strongly advises that these steps be carried out in the presence of witnesses. “If you’re not the sole facility owner, there are steps you should not take alone,” he says.
“The cutting of the lock and videotaping of the contents should be done by two people. Maybe bring in the individual who handles your public sales. You can have him cut the locks for you or watch you cut the locks while he runs the video camera. This way you have an independent, nonaffiliated person to say, ‘I was there, and this is what I saw in the unit.’”
In the event of a lawsuit relating to the disposal of tenant goods, you’ll have to prove the process conformed to state statutes. If there’s any reason to question the validity of an auction, do not proceed. Many owners prefer to let tenants retrieve their property at no charge rather than face potential liability.
In any case, make sure you have adequate insurance. Sale-and-disposal legal liability is an essential coverage for all storage owners. It provides protection against conversion, the act of wrongfully taking, selling, using or destroying the goods of another party. Due to the diversity of stored goods and the wide range of property values, the penalty for conversion can be extremely high. Specialty coverage pays the defense costs of any lawsuit brought against a facility for the sale or disposal of property. In addition, if a court finds the facility liable, insurance will pay the claim.
Sale-and-disposal legal liability is not generally available through regular business-insurance carriers and cannot be added to a standard business policy. However, it can be secured through insurers that specialize in self-storage.
In the event that a lien suit is brought against you, notify your insurance carrier as soon as possible. It needs to be involved to settle the issue promptly—waiting could result in a lapse in coverage. After all, you have insurance so the carrier can handle claims on your behalf, and you can continue day-to-day facility operation.
John Roark is part of Universal Insurance Facilities Ltd., which offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information, a free copy of your state’s lien laws, or a quick, no-obligation quote, call 800.844.2101; e-mail firstname.lastname@example.org; visit www.universalinsuranceltd.com.