The Danger of Creating a Bailment

By Jeffrey Greenberger

Ten years ago, people who wanted to store vehicles at self-storage facilities found themselves relegated to a grassy or muddy lot along the back fence or had to place their vehicles in a standard storage unit. These days, however, vehicle storage is big business, with buildings constructed solely for the purpose of storing large RVs, boats, antique cars and more.

Over the years, self-storage owners have expanded their operations to make them more attractive to customers. Those who store boats and RVs now offer all sorts of services, including vehicle maintenance, repair and restoration; oil changes; chemical-toilet cleaning and washing; and boat launching and retrieving. Some offer to gas up vehicles as well as stock them with food and beverages. But while offering these customer conveniences may seem smart, they change the nature of your relationship with customers.

Providing additional services for RVs and boats through your storage operation can put you in a valet-type arrangement, making you a bailee of stored vehicles. Having a bailment means you have control over what happens to an item while it is in your care. In a typical selfstorage arrangement, operators seek to avoid bailments—that is, they rent space and, for all intents and purposes, what happens to what is stored there is the business of the occupant only.

This sort of freedom can also be the case in RV, boat and vehicle storage if you simply let tenants “park and lock.” However, if you have additional control, i.e., you hold the keys or park or rack vehicles for tenants, you have a greater degree of responsibility for the care, custody and control of stored vehicles.

Typically, the duty you assume is that of ordinary care. It is similar to that of a valet at a restaurant or shopping center, for example. People expect a valet to carefully park their cars somewhere reasonably safe and return them in the same condition in which they left them. Otherwise, they expect him to be responsible for his own negligence. Obviously, if the valet willfully damaged a car, he would be liable. Conversely, he would generally not be liable for extraordinary or unexpected events, such as a car being stolen from its “safe” parking space. In short, as a bailee, you are solely liable for ordinary and foreseeable damage.

Let’s say you keep keys so you can park vehicles or have them pulled up, warmed up or cooled off for tenants when they arrive at your facility. During storage and delivery, you have an ordinary duty to take all caution and avoid damaging the vehicle. Normal damage that occurs on your “watch” is your responsibility.

Similarly, if you gas up the vehicle, you are liable if you use the wrong type of gasoline. If you undertake to have repairs or restoration made to the vehicle, you are responsible if they are not made properly. In a far more extreme case, if you stock a vehicle’s refrigerator with food or beverages for a customer, and someone takes ill or has an allergic reaction, you could possibly be held accountable.

In general, you are liable for any damages or dissatisfaction a customer has with the services you provide. Sometimes, however, you become the victim of things that aren’t your fault, as in the case of a vehicle owner who blames you for damage he inflicted himself. For example, a tenant backs his RV into a tree or a bollard, causing $10,000 in damage to the vehicle. He then pulls the RV into his space and parks it. You have a key because of services you provide, so you have a bailment. The owner comes into your office a week later and asks how his vehicle got damaged, attempting to hold you accountable for his blunder.

In this case, there are several simple steps you can take to minimize your liability exposure. First, you must have the appropriate insurance, in adequate amounts, to cover you for losses arising from your bailment. Remember, RVs and boats can cost upward of $500,000. Having regular self-storage insurance is not enough, since that policy presumes you are not assuming care, custody or control of tenants’ property.

Second, having digital video cameras that record the comings and goings around your vehicle-storage area is critical. If you can show proof a vehicle was damaged prior to being parked in your space—or have the incident in question on film—a tenant will be less likely to succeed in his claim that you caused the damage (or theft or vandalism or whatever it is causing the dispute).

Third, make sure the rent you charge is commensurate with the value of services you provide so you can afford the liability you accept. Do not take on a bailment gratuitously. If you are going to provide a gas service in which one of your employees drives vehicles to a gas station to fill them up for tenants, make sure your charge reflects all of the additional costs of insurance and liability.

If your employee is hit by a drunk driver on the way to the gas station, his injuries (in most states) will count against your workers’- compensation rating, and the damage to the tenant’s vehicle will apply to your insurance. If the driver who hit your employee is insured, you may make a recovery; but you must price your services to recognize the risks.

Fourth, form separate entities to perform certain types of services. That is, while you store a vehicle as ABC Self-Storage, subcontract the repair or moving functions to ABC Transportation Co., a separately owned LLC or corporation responsible for the moving of vehicles. That way, if there is a catastrophic loss or you are not adequately insured, you may still be able to protect your investment in the facility.

People often ask whether they can have tenants sign a release of liability to absolve them of responsibility in the event of a vehicle-storage incident. Generally, these releases are ineffective in the case of a bailment. If they worked, every valet-parking service in the world would have you sign a two-page release before they took your car. The case law usually holds you cannot be released from this type of liability because you are undertaking the bailment for a charge. If you assume the bailment, you are liable for the ordinary and normal consequences if damage occurs.

While you may include releases in your self-storage contracts (and I still recommend doing so), do not rely on a release as your sole protection. Remember that while all of your services represent a benefit to your tenants and make wonderful marketing statements, you must be aware of the liability you assume and be ready for it in advance.

This article is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney.

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self-Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151.