By Bernard Fensterwald
Running a successful self-storage business can be stressful at times. Things come up. Sometimes you’ve planned for contingencies, sometimes you haven’t. It’s generally true that if you’ve planned for an unforeseen event, it will be easier to manage.
This article discusses 10 simple ways to protect your self-storage business and make its operation less taxing from a liability perspective.
1. Protect Your Status as a Non-Bailee
As recently as 40 years ago, consumers who wished to store property offsite did so at a warehouse. They turned it over to a warehouseman, who accepted custody. The goods were stored under the care, custody and control of the warehouse. If items were lost or damaged, liability lay with the warehouse, i.e., a bailment was created.
The self-storage industry was founded on a desire to provide a simpler alternative in which the consumer had easier access to property and the liability remained with the tenant, not the warehouse owner. Rather than turn over care, custody and control of the goods to the business owner, the tenant remained in control. He placed a lock on the storage unit and retained the key.
A good way to understand the difference is to consider valet parking, where you leave your car and the keys with an attendant. If the attendant damages your car, he pays. If your self-storage tenant experiences damage to his property, however, you do not pay.
How do you protect your status as a non-bailee? First, be sure it’s clearly stated in your rental agreement. State that no bailment is created, and the care, custody and control of the stored property always remains solely with the tenant.
Second, avoid behavior that might re-establish a bailment after the fact. For example, limit your ability to enter a unit without permission to real emergencies. If you need to enter to perform routine maintenance, get permission first. Do not accept deliveries for tenants and volunteer to place them in the unit. Instead, develop a separate authorization form that restates your non-bailee status, and set up a holding area for deliveries where tenants can collect them and place them in their units themselves.
Lastly, in the case of delinquent tenants, don’t risk your non-bailee status until the lien process is complete and you have authority under state law to enter the unit and dispose of the property via auction. Operators often ask if overlocks jeopardize their non-bailee status. Most would agree they do not since only a stalemate is created. Your access is no better than the tenant’s at this stage. Your tenant may be denied access, but you gain nothing new. Their lock still protects their property.
2. Observe and Be Vigilant
This might be obvious to many, but it’s important to reaffirm the concept that you, the self-storage owner, must be aware of what’s going on at your facility at all times. Don’t take things for granted or be afraid to step in, sooner rather than later.
Recently, I became aware of a facility embroiled in legal trouble. They had hired a contractor to replace the site’s roof. The contractor, in turn, hired a subcontractor to do the actual work. The subcontractor placed the roofing material on pallets near the property’s fence. Unnoticed, a piece of the roofing material protruded through the fence into the public sidewalk. A bicyclist traveling on the sidewalk ran into a piece of the roofing material, fell off the bike and was injured. Now, the bicyclist is suing. Could this have been avoided? Maybe.
While it’s not possible to know what the facility staff was doing that day, one can guess they were not closely observing the subcontractor. Had they done so, perhaps the material could have been moved and the accident avoided. Owners and managers must watch what’s going on at their facility and be on the lookout for problems like the one above.
Operators should keep an eye on what tenants are storing their units as the goods are being unloaded. It's better to deal with a 55-gallon drum of “green goo” at that stage, rather than after a tenant has departed, leaving it for the operator to dispose of.
In a similar vein, how many times has a facility owner discovered financial malfeasance by an employee after the fact? This type of problem might be avoided by being vigilant at an earlier stage. Owners need to be on top of their facility and staff, and managers need to keep a constant watch on things happening at their site. Know your tenants. Know the issues.
3. Educate Yourself
Generally, education is a good thing. This is particularly true when it comes to self-storage. To many, self-storage may appear to be a simple business, but if you’re going to be successful, it’s actually quite complex.
Continuing education, for operators and staff, creates knowledge. Knowledge creates certainty in your operation. Certainty leads to less stress. Therefore, you should engage in a systematic program of educating yourself and your employees. Operations, marketing, general business practices, sales, technology, finance, the characteristics of your market—these are all fruitful areas for continuing education. Technology is an important area because it’s rapidly evolving and has such an impact on so many facets of the self-storage business.
One area that deserves particular focus is state law, which governs the way self-storage acts in the marketplace. An example is the state lien statutes. Through these laws, operators have essentially been given a gift. Unlike a traditional landlord who has to go to court to evict a tenant, self-storage operators have been blessed with non-judicial enforcement of their liens. You can lock out a tenant for non-payment of rent and sell his property at auction without having to go to court—less time, less money, less stress. But you need to be intimately familiar with the process.
Obtain a current copy of your states’ lien law, including any special regulations such as those pertaining to motor vehicles and boats. Study these laws. Learn how the process works. Commit them to memory. Consult with an attorney about any issues you don’t understand. Then pass along what you’ve learned to your staff. They’re the ones who will use this knowledge daily. If you’re comfortable knowing they act with certainty, it will save you headaches later.
4. Engage Customers in a Friendly Way
Remember the old adage, “You catch more flies with honey than with vinegar”? It’s just as true today, and it certainly applies to your business. You’ll be more successful if you and your staff engage with your customers in an open and friendly way. Get to know them. Build mutual trust. Be fair and honest.
Too often, these simple concepts are ignored today. The human element is forgotten. We’re comfortable sitting in our office in front of a computer screen. Get out in front of your customers and interrelate with them. Convenience aside, would you rather give your bank deposit to a teller or an ATM? Which one works better in developing a reservoir of good feelings and trust?
Ancillary to the concept of openness is that of fairness. State plainly what you promise and follow through. Studies show a satisfied customer will convey that feeling about you to three friends, an unhappy customer to 10!
5. Maintain Your Business Entity
When a new business is formed, owners and their attorneys discuss the form the business shall take: sole proprietorship vs. corporations vs. partnership vs. LLC and so forth. Great care is taken to be sure the entity is set up properly, dotting every I and crossing every T.
However, this isn’t the end of the story. Each type of business has ongoing legal requirements necessary to maintain its existence. Fees must be paid. Forms must be filed. In some cases, annual meetings must be held and recorded. Too often a business opens its doors, customers flow in, and these ongoing legal niceties are forgotten. Then the unthinkable happens. Someone makes a mistake. A lawsuit commences. The business owner leans back and says, “No worries. I have protection from personal liability because I put the business in a __________.”
Despite this, a good plaintiff’s attorney may look to see if the entity has been kept up to date and in good working order. Have those fees been paid and those forms filed? Has the owner been sloppy? If so, an argument can be made that the entity is really a fraud and the court should “look behind it” to the real owner—you.
The advice here is simple: Task yourself or an employee to be sure these details are followed. All the time. To the letter. Fees paid. Forms filed. Records kept. On time. Knowing these matters are complete and up to date will reduce stress.