The self-storage industry recently suffered another high-dollar wrongful-sale verdict in the case of Dubey v. Public Storage, the third lien-sale case in a year with a notable verdict or high award. It’s time to conclude that lien sales, if not done properly, pose a huge risk of exposure to your business, both financially and from a consumer-relations standpoint. If you don’t know how to do a lien sale correctly, you need to learn.
Easier Said Than Done
Properly conducting your lien sale is not as easy as it sounds. Many state self-storage statutes have inconsistencies that make it difficult, even if you follow the statute closely. For example, several require that you send a notice to the tenant via Certified Mail, including a demand for payment within X number of days of notice receipt. This is easier if delivery is presumed in your state statute; however, delivery is not presumed in most states when a notice is mailed. It’s almost impossible to make a demand for payment within any number of days after delivery because you don’t know when or if delivery actually happens.
There are other problems with your state statutes that are more subtle. For example, your statute may have a presumption of delivery for your Certified Mail notice, but can you really presume it delivered when you get it back marked “undeliverable”?
There are also problems simply because many statutes are creatures of the ’70s and ’80s and have not been modernized. How can you run an ad in a newspaper of general circulation in a city or town in which the facility is located when the local newspaper has folded? All of these issues come together to make lien sales more difficult to conduct, and courts seem to be losing patience with self-storage operators who make mistakes in their sales.
Please note: Courts seem to be awarding the largest verdicts for sales that shouldn’t have occurred at all, such as when the tenant was current at the time of sale. But there are decisions creeping up, such as in the Cook v. Public Storage case, in which the tenant was delinquent and should have been sold, but the operator made mistakes in the sale and a large verdict was awarded.
Jeffrey Greenberger will address the Dubey vs. Public Storage case during his special intensive workshop, Legal Learning Live, at the Inside Self-Storage World Expo, March 1-3. To register, visit www.insideselfstorageworldexpo.com.
So how do you protect yourself? A lien sale or threat of a lien sale is still the strongest and, in some cases, only option for dealing with a tenant who isn’t paying rent. While this article can’t address state-by-state concerns, here are several general suggestions:
- Make sure your tenant is actually in default.
- Know, understand and follow the technical requirements of your statute.
- Have insurance to protect against any errors.
- Know what kind of sale you can have.
In both of the $1 million-plus cases for wrongful sale cited above, the tenant was not actually in default. In one case, the tenant had pre-paid rent for a year; in the other, the facility manager misassigned the tenant’s name to a unit not occupied by the tenant. There have been countless other cases in which the tenant wasn’t actually in default when his unit was sold. Those are the stories that grab the court’s and media’s attention and tend to vilify the self-storage industry.
Self-storage lien-sale statutes are remarkably similar to Uniform Commercial Code liens a bank might use to protect its equipment. But because ours is an industry that deals more with consumers than businesses, it’s easier to paint a negative picture of storage-related litigation. People care more about wrongfully sold wedding photos than a wrongfully sold forklift.