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Managing Self-Storage Delinquencies, Bankruptcies and Abandonment

Scott Zucker Comments

To some, self-storage is an expected expense, like a utility bill, a necessary and routine cost of running a household or a business. To others, it’s unexpected, the need to store property as the result of a sudden crisis—a marital separation, foreclosure, relocation or natural disaster. Whether the use is temporary or long term, self-storage is a solution to a problem of needing to store property when you have nowhere else to put it.

But the need for storage doesn’t always translate into the ability to pay it. In the current competitive world of dollar move-ins, waived security deposits and no credit checks, the cost of moving property into a storage unit is only a fraction of the cost of actually maintaining the occupancy past the first month. Self-storage is popular and its use has grown exponentially over the last few years. However, it’s no surprise in this economic climate that the level of delinquencies, bankruptcies and abandonments has also grown. It’s important for self-storage operators to be aware of these trends and be prepared to respond to them. 

Encouraging a Move-Out

As rent defaults increase, it’s extremely important for operators to be proactive in working toward the quick resolution of troubled accounts. Sometimes, even though the operator is permitted to deny access and enforce a lien over the stored contents in the space, the best solution is to simply negotiate a reduced “move-out” price (some discount on the debt owed), and close the account upon the tenant vacating the space. Another option, for those tenants who want to move out but don’t have money to pay now, is to allow a move-out and negotiate a future payment plan for debt owed.

The key to both of these deals is the move-out. If the tenant doesn’t move out, the operator has simply negotiated a discount without the benefit of removing the delinquent tenant. Therefore, it’s essential that the discounted move-out agreement be in writing and include a “what if” clause.

This clause simply provides that in consideration for the operator’s agreement to reduce the rent and permit the move-out, the tenant must vacate the space by a certain date. If the tenant doesn’t move out as agreed, the agreement provides that the property in the space is abandoned to the facility and can be sold or disposed. The language would be something like the following: 

Tenant has agreed to remove all of his contents from the storage unit no later than the close of business on ________________. Tenant agrees and understands that all property in the unit is to be removed and the unit is to be left in a clean, broom-swept condition, and that any property left in the unit after the close of business on ____________________shall be deemed abandoned by the Tenant and may be immediately disposed of by the Owner. 

Under any of these agreements, if the tenant leaves—which avoids further lost rent for the operator and the unrecoverable costs of foreclosure—but doesn’t pay, the operator can decide whether to pursue the debt through various means of collection. However, the most important aspect of such a resolution is the operator’s ability to avoid the loss of further time and expense on a tenant who wants to stay but just can’t afford to. 

Abandoned Units

Delinquency resolution can be through tenant voluntary move-outs as well as voluntary property abandonment. Certainly, there will be times when the tenant cannot pay the rent but decides it’s no longer important to keep his property. In such a case, in lieu of a move-out or lien foreclosure, the tenant can simply abandon the property in the unit to the facility operator—typically in consideration for the waiver of his account balance. To avoid misunderstandings, the abandonment should be in writing and contain language such as: 

My signature on this form will constitute my release in full of any claims or demands against [self-storage company name] concerning the use of the storage space or the contents of the storage space, and I release all rights, title and interest to any personal property located in the unit. I understand that any personal property remaining in the unit may be disposed of by [self-storage company name] in any manner at the discretion of [self-storage company name]. 

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