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Avoid Legal Exposure in 2008

Jeffrey Greenberger Comments
Continued from page 1
Value-limitation clauses are regularly upheld by courts. While not appropriate for every self-storage relationship (for example, a $5,000 value limit would not fly with a half-million-dollar RV-storage contract), the average arrangement should have a cap/limit on in dollar value and in terms of storing “irreplaceable property at the facility.”

Have a well-documented lien-sale procedure including many opportunities for “gut checks” before the sale. Operators have often sold property at a lien sale and then wondered if a partial payment accepted at some point during the process, an occupant bankruptcy, restraining order, an occupant in the military etc., should have stopped the sale. Post lien sale, after the property is gone, is the wrong time to be asking these questions. A good lien sale plan/flow chart is essential.

Here’s what you need and why you need it:

The Questions. A good flow chart asks the hard questions you might, for whatever reason, overlook. I’ve seen cases in which software conversions have messed up payment history and the manager simply didn’t notice. Weekend managers may have accepted a “forbidden” partial payment the Saturday before a Monday sale and not updated the computer. Or a manager may not have double-checked the computer before the sale to see if a payment has been made.

Some of the key “gut check” questions include:

  • Is there any chance you've applied a payment to the wrong unit?
  • Does the occupant have other units that are current? Maybe a payment that came in was meant to be applied to the delinquent unit?
  • Is it possible someone other than the occupant has property in the unit you're proposing to sell?
  • Have there been any partial payments precluding the sale? as anyone checked the manager’s “inbox,” which may have received bankruptcy notices, restraining orders or other correspondence affecting the sale?

The Answers. The second reason to have a lien-sale checklist or flow chart is to show a court that even if you made a mistake, you didn’t act recklessly or vindictively. This can help you avoid punitive damages that are sometimes imposed by a court and becomes an excellent defense tool in a lawsuit.

What other strategies will keep you out of lien-sale disaster? One option for avoiding exposure is to forget the sale altogether. If you have any communication with the occupant and you’re getting close to the sale, do not be afraid to, as Jim Chiswell would say, “play Monty Hall and make a deal.”

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