Self-Storage Sale and Disposal: Know the Law Before Acting

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Consumer-protection statutes are in place to protect all of us from the misrepresentation of goods and services and unfair collections practices. In this context, your right to lien, seize, sell and dispose of property belonging to tenants who may be in arrears on their monthly rental fees must be considered well beyond the boundaries of your rental contract.

Consumer-protection acts in the various states, combined with the Fair Debt Collection Practices Act and other consumer-protection vehicles, require you to carefully consider your right to sell and dispose of property owned by a tenant but stored in your facility.

Servicemembers Civil Relief Act

One of the most far-reaching consumer protection acts is the Servicemembers Civil Relief Act (SCRA). Enacted in December 2003, the SCRA protects active-duty military personnel from certain penalties that may result from business transactions. Your self-storage business is subject to the SCRA, and failing to act accordingly could be extremely costly.

The SCRA revises and replaces the former Soldiers’ and Sailors’ Civil Relief Act of 1940. The purpose of the SCRA is to provide some relief from worry about their daily financial burdens to those on active duty protecting their country. Relief granted by the SCRA includes:

  • Mortgage relief
  • Termination of leases
  • Protection from eviction
  • Six percent cap on interest rates
  • Stay of court proceedings
  • Reopening of default judgments

Now, more than ever, it is critical for self-storage facility owners, operators and managers to understand the scope of the SCRA. Knowingly violating the act may result in fines and penalties including imprisonment. Section 307 of the SCRA allows members of the armed services to enjoy the protection of the law from liens, sales and disposal of property stored at a self-storage facility in the event they are called to active duty and unable to honor their contractual obligations. This protection extends to members of the military reserves when they are called to active duty as well as to regular active-duty servicemen and women.

Although it is not specifically addressed in the SCRA, it would seem that for a servicemember to avail himself of the protections of the SCRA, he may be required to make creditors and other potential lien holders, including self-storage facilities, aware that he has been activated and is on military duty. On the other hand, since the SCRA does not specifically require a servicemember to provide notice, there appears to be no way to guarantee that self-storage operators would know unless they specifically ask. Therefore, you may consider posting signs requesting that all tenants who are on active duty in any way immediately notify the self-storage manager. As you attempt to collect rents, and especially before you execute on a lien and auction off any tenant’s property, it may be wise to inquire whether a tenant is a servicemember on active military duty as spelled out in the SCRA.

Legal Requirements and Documentation

Although not as far-reaching as the SCRA, other protections are available to consumers including those over the age of 65. Consumer protection is complex and evolving and may take many forms depending upon your state and the circumstances of the situation. State laws addressing the sale and disposal of property owned by others but subject to your rental lien confer upon both the tenant and the lien holder certain rights and obligations.

When it comes to deciding whether to act upon your lien against a delinquent tenant’s property by selling and/or disposing of it, be advised that you need to consider such action in consultation with your legal counsel and your insurance agent. Most tenants would view the sale and disposal of their property as a personal assault upon their household.

Since many people keep important papers, family heirlooms, memorabilia, photos of loved ones and other valuables in their storage units, it is understandable they might become upset when their property is auctioned off to strangers. Such sales could result in lawsuits that may be expensive and, as with any litigation, could result in a judgment being entered against you.

The courts view consumer-protection claims in general, and sales and disposal claims in particular, as requiring careful documentation of the defendant’s actions prior to the sale of the possessions in question. The legal requirements and timelines involved are normally spelled out in the states’ consumer protection statutes, and you should be keenly aware of the limitations imposed by your state’s statutes upon such sales.

It is also critical that you follow the guidelines in the statutes carefully, both as to your right to place a lien on the property and your right to sell it, and comply with the time requirements for all elements of notice to your customer of your intentions and their obligations.

It is also strongly recommended that you consult with your attorney and insurance agent, obtain a copy of your state’s consumer protection statutes, prepare a timeline for the statutory notice requirements to your delinquent tenants, and follow the statute conservatively in implementing your rights under your storage contract.

The consultation should be ongoing, not merely for a certain time period or for a particular circumstance. The law dealing with consumer rights is continuously being refined by both the legislatures and the courts; you must keep abreast of developments that may affect the manner in which you do business.

Adhere to Policy

Litigating sale and disposal claims is extremely difficult because most plaintiffs, having had their goods confiscated, will draw sympathy from a jury. In litigation, the items stored in the facility suddenly seem to take on a patina and sentimental attachment that they perhaps never enjoyed while in the possession of their owners. The emotional appeal to a jury is unmistakable, and litigation always poses a risk.

The very least a jury will expect to see from the defendant is the self-storage facility’s perfect adherence to the notice requirements and the timeframes outlined in the statutes for such actions. Otherwise, the defendant runs the risk of being equated with thieves in the minds of jurors, a predicament that will only serve to reward the plaintiffs and punish the defendant.

In many jurisdictions, a violation of the consumer-protection act carries with it certain penalties that are written into the act itself and may include treble or other multiples of plaintiffs’ claimed damages plus payment of plaintiffs’ legal fees. In a case where a plaintiff is alleging hundreds of thousands of dollars in missing property, such a jury award might exceed the policy limits of a sale and disposal liability policy, leaving the defendant self-storage facility personally exposed to an excess judgment. It quite literally pays to discuss this and related issues with your insurance agent and attorney.

This article is not intended as specific legal advice and should not be substituted for the advice of an attorney who specializes in the self-storage industry. Speak with your legal counsel and insurance agent to gain further insight into your particular state’s consumer protection laws so you may map out your strategy in advance of a sales and disposal situation.

Michael Rice is manager of claims for Phoenix-based MiniCo Inc., which provides specialty programs for self-storage businesses including property and casualty insurance and tenant insurance programs. For more information, call 800.528.1056; visit www.minico.com.

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