What Would You Do? Self-Storage Auction Dilemmas

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For all of these reasons, if the tenant shows up at the lien sale, offer to sell him his unit for whatever money he has so long as he's out by the end of the day. And get him to sign a release so your good deed isn't punished with a lawsuit two weeks later.

Zucker: Self-storage foreclosure sales are, in the majority of states, “public” sales, which means the delinquent tenant can attend and even bid on his own property. Conceptually, this might appear to be a good idea from the perspective of the tenant, who may owe more to the facility in rent than the amount for which the unit sells at auction. But the idea loses its appeal if the facility operator makes it clear that he will pursue any deficiency he cannot otherwise recover at the sale. Some operators will even set a minimum price for the sale of the unit. In both cases, there's less incentive for the tenant to try to buy his items at the auction as a way to avoid paying the full rent owed.

There are grounds to refuse a tenant access to the facility during a lien sale. An operator has the discretion to allow bidders on his property only to the extent that he feels the auction can be held safely. If a delinquent tenant is belligerent or threatening in any manner, there is case law to support an operator’s decision to refuse access to that tenant. Unless the tenant can provide evidence that he is attempting to pay the debt to avoid the sale, access can be denied. Again, before barring the tenant from the sale, the operator should confirm that the tenant is not there to pay the debt. The decision to deny access is a significant one and should be carefully weighed.

What would you do if an auction attendee was unhappy with his purchase?

"Our auction bidder agreement specifies they purchase the unit 'as is, with no warranty.' Welcome to life in the big city," say the Haesslers. SafariLori concurs: "Our bidders are also pretty savvy about units being 'as is.' They don't want us to cherry-pick a unit before auction (which we would never do!), and they don't whine when nothing is there. More often than not, they get something they like. But that's the game, isn't it?"

Hughes just tells it like it is. He explains to tenants, "I sympathize with you, however, please re-read your copy of the auction rules. 'ALL UNITS ARE SOLD AS IS, WHERE IS.' Please bid accordingly. Now if that would have been a super unit, would you have told me about the great contents, and would you be willing to share the profits?"

What SHOULD you do?

Greenberger: Since the development of certain "reality" shows, we've had more and more unhappy purchasers because they don't understand that what they are buying, in almost every unit, is junk, despite the miracles that seem to occur daily on TV. The secret to preventing problems is a well-written set of auction rules signed by the buyer each and every time he attends a sale at your facility.

Among other things, these rules should indicate that you as the operator do not represent the unit contents, or the condition or value of the goods; that you have not performed a detailed inventory of the goods (West Virginia excluded); and that it is possible that the buyer will pay more than the goods are worth. In some states, you may be able to say you haven't entered the unit at all, depending on your state's inventory requirements.

Have your attorney draft a well-written set of sale rules including releases of all liability for damage, failure to obtain fair value, and personal injury that may occur at the facility. It should also indicate if you're going to exclude certain items from the sale, such as family Bibles or personally identifiable information. Make sure this is all clearly spelled out in your rules so you can enforce your rights against the buyer and protect yourself in the event that he enforces his rights against you.

Zucker: The bidders who generally attend self-storage auctions are looking for undiscovered treasures, so it's not unusual that those "hunters" will leave disappointed in what they eventually purchase. It's crucial that bidders understand in advance of the auction what the rules are concerning the sale, including what rights they have if they are dissatisfied with what they pay for. Facility owners should have all bidders sign a bid-rule sheet containing the conditions of the auction, including, but not limited to, the following provision:

Facility does not accept any liability on the goods purchased at the time of the sale. Goods are purchased in an “AS-IS” condition. No guarantees or warranties of any type or kind are expressed or implied with the purchase of any item. ALL SALES ARE FINAL!

If such a provision is included in the bid rules, buyers will not only be aware of the conditions upon which they are purchasing the unit, they will have waived their right after the purchase to seek any return of their payment or other remedies.

To read more great content in the ISS "What Would You Do?" business-challenges series, type code WWYD13 in the search box at insideselfstorage.com.

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