Rental Agreements Help Self-Storage Operators Limit Liability Exposure

Comments
Print
Continued from page 1

Insurance Mandate

Including a requirement that tenants insure their property accomplishes two goals. First, it provides a tenant with a primary source of compensation in the event of a loss. Second, it places the burden on the tenant to see that he’s adequately protected in the event of a loss.

An insurance clause within a rental agreement may stipulate tenants are required to obtain sufficient insurance to cover the value of all property stored at the facility. To the extent a tenant fails or is unable to insure his property, the tenant would be deemed to have self-insured, thereby making the tenant solely responsible for the loss. To increase the likelihood of protection in cases involving high-value property, a rental agreement may require a tenant to show proof of insurance if the value of the tenant’s stored property exceeds a specific amount.

To maximize the protection afforded by an insurance clause, the tenant must agree to waive any subrogation rights, thereby preventing the tenant’s insurance company from coming after the self-storage owner to recover amounts paid out for the tenant’s loss. Whenever a tenant obtains insurance, self-storage facilities should require and confirm that the tenant obtained a waiver of subrogation agreement from the insurance company.

Disclaim Existence of Bailment

Bailment is the temporary placement of control over, or possession of, personal property by one person (the bailor) into the hands of another (the bailee) for a designated purpose upon which the parties have agreed. Under the law of bailment, the bailee owes a duty of care to the bailor with regards to the property, and depending on the type of bailment, the duty of care owed to the bailee can be quite strict.

To avoid being held to a potentially strict standard of care, self-storage owners should disclaim the existence of a bailment in their rental agreement. Since a bailment is a consensual transaction requiring mutual agreement by the parties, which can be created either expressly or impliedly, a rental agreement should expressly stated that no bailment is created under the agreement.

Additionally, since a general requirement of bailment is that the bailee obtains the right to exclusive use and possession of the property, a rental agreement should state the self-storage facility does not take care, custody or control of the tenant’s property. In a typical situation, a tenant should have exclusive control over his property, and provided the tenant is not in breach of the agreement, laws or rules, the facility is not concerned with the kind of property stored by the tenant.

Disclaim Warehouseman Status

A warehouseman, or warehouse, is an individual who’s regularly engaged in the business of receiving and storing goods of others in exchange for compensation. As with bailment, carrying the distinction of warehouseman establishes a standard of care that’s owed to the owner of the property.

To avoid being held to such a standard of care, a rental agreement should expressly state the self-storage facility is not a warehouse or a warehouseman engaged in the business of storing goods for hire. A self-storage facility should also refrain from acting in a manner that would be consistent with that of a warehouseman, such as issuing documents of title for the personal property.

In addition to the foregoing clauses, there are various other contractual provisions which are designed to limit the liability exposure faced by a self-storage facility, including clauses which:

  • Prohibit the storage of heirlooms or other property with sentimental value
  • Restrict the types of property or uses of storage space to exclude inherently dangerous items or activities
  • Disclaim warranties
  • Clearly establish a facility’s rights in the event of a default
  • Incorporate a facility’s rules and regulations into the rental agreement, including any modifications
  • Waive the right to a jury trial in the event of a lawsuit

When a lawsuit results from a tenant’s loss of property or bodily injury, a court will typically start with the rental agreement when determining each party’s respective rights and obligations. Thus, it’s important to draft the rental agreement so it provides the maximum protections allowable under applicable law.

However, since contractual provisions that limit a party’s liability are often the primary focus of litigation, courts will examine them closely before enforcing them against a tenant. Accordingly, it’s best for a self-storage owner to retain an experienced attorney who’s licensed in a particular jurisdiction to draft or review his rental agreement.

Anita Byer is president and CEO, and Martin Salcedo is general counsel and self-storage risk management group member of Setnor Byer Insurance & Risk. Headquartered in Plantation, Fla., the company is an independent insurance agency dedicated to developing comprehensive insurance and risk-management solutions for clients throughout the United States. For more information, call 888.253.8498; visit www.setnorbyer.com.

« Previous12Next »
Comments
comments powered by Disqus