When the economy weakens it’s not uncommon to see a rise in lawsuits filed against self-storage owners and operators. This is not a coincidence. In tough times, people look for other ways to make money and are much less forgiving of the small losses they would have not previously fussed about. Additionally, with the increasing number of foreclosures and evictions, people are losing their homeowners or renters insurance, which would otherwise pay for some of these claims. Also, many self-storage owners and operators are cutting back on employees, deferring or making “temporary” repairs to facilities and equipment, such as alarms and gates, which normally provide some deterrent to theft.
Safeguard Your Business
While there is not much we can do to turn the economy around quickly, you can protect yourself. It may seem like bad timing, but this is the most important time to review and update your rental agreement to provide legal safeguards to fend off or minimize these types of claims. There are six areas you should review in your rental agreements to ensure these provisions are well-written, solid and apply to all your existing occupants.
1. Valuation limit. Have a valuation limit in your agreement and, if appropriate, a limitation of liability clause. A limitation on value requires that the occupant agrees there is a maximum value to the stored property in the storage unit. You are not, by this clause, necessarily agreeing to provide insurance or be responsible for that amount of value or even agreeing there is a value. Rather, if there is a claim later you will know the maximum dollar figure the occupant can claim against you.
This goes hand-in-hand, in some states where permissible, with a limitation on liability. The limitation of liability figure may even be lower than the value limit. While you may say the value limit is $2,500 or $5,000, in many states you can say you will only be liable in the event of a loss for up to $1,000, as an example.
In some states a liability limitation may not be an enforceable provision, but a value limit is always enforceable, if properly written. Remember, for a claim to be valid and result in a potential judgment against you several things must be present:
- There has to be a loss.
- You have to have done something negligent, willful or intentional to have caused the loss.
- Damages must have occurred. Those damages must be demonstrated in a trial. If the value limit and the liability limit are set low enough it will often not be worth the occupant’s time, energy or money to bring a claim.
2. Military status. You are setting yourself up for a lawsuit if you do not ask in your rental agreement whether the occupant or any member of his/her family is in the military and, if so, to list additional contact information, including the commanding officer’s name and phone number. If you are not familiar with the terms of the Servicemembers Civil Relief Act (SCRA), and you are conducting lien sales, you are risking an unnecessary lawsuit. SCRA imposes upon you duties to act in a certain manner that may be different than with a normal occupant if you know your occupant or a family member is in the military and serving overseas.
The SCRA is a notice statute; you have to have notice of military service. If you have never asked this question, you have missed your opportunity to be on notice of military service. If you think it is better not to ask and keep your head in the sand, it will not be a good defense if an action is brought against you. The simple solution is to ask about military status and deal with it if need be.
3. Charges and fees. List your actual charges and fees.While the statute in your state may permit charges such as a late fee, non-sufficient fund fee, overlock fee, certified mail fee and so on, contractually you need to list actual charges, or notice of the charges the occupant could incur.
This is simple in New York where you must itemize all the mandatory and optional charges. In other states you should still list these charges. Do not give a judge the opportunity to say you are not entitled to a charge or, worse, that you sold but you should not have sold.
Also make sure you have a default clause. Obviously, a major default issue is non-payment of rent, but there are other grounds under which you would want to terminate the rental agreement.
As a matter of fact, your rental agreement probably lists, in various places, other prohibited activities, such as working on automobiles, manufacturing, living in the unit or housing animals. While these are defaults, you should have a clause that the judge can easily review to determine the operator had the right to terminate a rental agreement.
Further, the default clause should be followed by a remedies clause. While overlocking and eventually selling, if necessary, in the event of a non-payment default is allowed by statute, what other remedies do you have if a tenant is constantly leaving garbage around the facility? Can you overlock and sell for bad behavior?
4. Liability clause. Make sure your release of liability clause is strong and covers all events in which you want to be released. It should cover loss or damage to property from any source or cause. In some states you may not be able to disclaim liability for your negligence; this is a discussion to have with your attorney. Make sure you are also getting a release of liability for injury. Sometimes the claims brought are not so much about damage to the stored property, but a slip and fall, or a finger caught in the door spring. Most release of liability clauses do not cover personal injury.
5. Mediation clause. A mediation clause gives both parties the opportunity to meet and hear each person’s side of the story with a neutral third party before litigation starts. If you do not mediate and are sued, you will need an attorney, end up doing discovery, filing other pleadings and generally running up attorney fees.
After you have paid the attorney you will be letting a judge, who knows very little or nothing about the world of self-storage, or worse a jury, make a decision about whether you owe money to the occupant for something that was not your original responsibility.
6. Vehicle storage. Are you storing vehicles? Are you sure you're not? Many operators many not know there are motorcycles or ATVs stored in their units. In indoor/enclosed storage, if you are not asking up front if the occupant intends to store a vehicle in a unit, you are making a huge mistake. There is a lot of additional information you need to store vehicles, including title, registration, lien holder information and insurance. If there is a loss, you will be hard pressed to prove there was not a vehicle in the unit. Moreover, without the title, it’s a long cumbersome process to conduct a lien sale successfully.
While times are tight, one of the best investments you can make is to review your rental agreement with your attorney. It can substantially reduce your risk of frivolous litigation and, in the event of litigation, cap the amount of the claim. It will also help ready you to move to the next level of your operations when the economy improves.
This article 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 J. Greenberger is a partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati, and is licensed to practice in Kentucky and Ohio. Mr. Greenberger’s practice focuses primarily on representing the owners and operators of commercial real estate, including self-storage owners and operators. To reach him, call 513.721.5151; visit www.selfstoragelegal.com.