In other words, by imposing an insurance obligation on tenants for the value of stored goods, if there is a loss or damage to the stored property, the tenant will be required to first recover compensation from his own carrier before seeking payment from the facility operator. It’s generally recommended a provision be added in rental agreement to require tenants have insurance coverage for the replacement cost of 100 percent of the value of the property being stored. An example of such language is:
The Owner does not provide any type of insurance which would protect the Occupant’s personal property from loss by fire, theft, or any other type of casualty loss. It is the Occupant’s responsibility to obtain such insurance. The Occupant, at the Occupant's expense, shall secure his own insurance to protect himself and his property against all perils of whatever nature for 100% replacement of the stored property. Insurance on the Occupant's property is a material condition of this Agreement. Occupant shall make no claim whatsoever against the Owner’s insurance in the event of any loss.
Because there’s the freedom to contract in leases, rental agreements with required insurance provisions are generally considered enforceable. A waiver of subrogation provision should also be included in the lease to limit the right of the insurance carrier to recover money against the self-storage operator for a covered loss. That provision might read:
The Occupant and its insurer agrees not to subrogate against the Owner in the event of loss or damage of any kind or from any cause.
Know Your State’s Lien Laws
Operators who plan to enforce their lien and selling rights must know their state’s self-storage lien laws. By following all the procedures and timelines in the law, they can protect themselves from liability. However, if a foreclosure sale is found to be invalid, an operator can be held liable for damages, which might include punitive damages if it’s found the operator ignored statutory guidelines.
Operators should first verify they have the most recent version of the lien law, as many states have recently updated their lien statutes. Once they’ve reviewed their state’s lien law, they should seek legal advice for any questions or ambiguities they encounter.
It’s clear the most significant financial liability a self-storage operator can face can arise from a wrongful sale claim from a tenant. Therefore, it’s essential operators obtain sufficient coverage for the risk of a sale through the purchase of sale and disposal coverage. This insurance will protect a self-storage operator not only from the value of a possible judgment, but the legal defense costs involved. Even if a foreclosure sale is handled in full compliance with the law, the coverage can protect an operator who’s forced to defend a tenant’s frivolous action.
Scott Zucker is a partner in the law firm of Weissmann Zucker Euster, P.C., in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Zucker is a frequent lecturer at national conventions and the author of Legal Topics in Self Storage: A Sourcebook for Owners and Managers. To reach him, call 404.364.4626; e-mail firstname.lastname@example.org.