By John Carlisle
By John Carlisle
Self-storage is a globally viable industry because people everywhere love their stuff. They love it so much they stockpile it beyond what their homes and offices can hold, and many turn to self-storage for a solution. But some fail to pay their storage bills, leaving facility operators in a lurch unless theres a process in place to place a lien on stored property, collect debt and, if necessary, conduct a self-storage auction.
Along the same vein, operators need guidelines for navigating the treacherous avenues of liability. When tenants store certain sensitive property, such as documents, weapons or vehicles, the legal procedure for selling, discarding or destroying these items is crucial for protecting operators against lawsuits.
Each of the United States has laws that define the process for self-storage liens. Though these laws vary, many of the tenets are similar, due in large part to a unified lobbying effort by the national Self Storage Association and the individual state associations. But Canadas lien-law endeavor is ostensibly less streamlined and consistent, and provincial differences can be extreme. Absent a clear statute in each area, operators must choose which laws to follow. Even when a formal process exists, some operators bemoan the tremendous amount of time and resources it takes to litigate.
Because there are no set rules, everyone does things radically different, explains Robert Madsen, president of U-Lock Mini Storage Group in British Columbia. Madsen, whos on the board of directors for the Canadian Self Storage Association (CSSA) and secretary of the Vancouver Island Self Storage Association, says the CSSA is making it a priority to create best-practices guidelines for members. When they will be available is uncertain, but Madsen does make his 15-point lien and auction checklist available for others to use.
Madsen also says the popularity of Storage Wars and Auction Hunters TV shows is having an effect on Canada self-storage law. Because of increased industry attention, facilities stand to benefit from conducting auctions, whereas in the past, there was little interest from Joe Consumer to attend a self-storage lien sale. Madsen reports being able to recoup nearly 100 percent of his lost revenue from delinquent tenants.
If auctions catch on industry-wide, it will be important for operators to know how to conduct these types of sales properly, Madsen says. Otherwise, a highly publicized lawsuit could cast the self-storage in a poor light. The big fear is the operator will make things up on the fly, he adds.
Ontario: A Complicated Lien Process
Ontario, Canadas most populous province, is home to the most self-storage facilities. It has a lien law that mentions storage, though not self-storage specifically. The Repair and Storage Lien Act, initially enacted in 1990 and last amended in 2007, serves as the standard for operators, but some see the process as long, complicated and litigious. Tammy Dewhirst, office manager at StorageStop in Windsor, Ontario, says her company adheres to the statute. Fortunately for her, shes only had to route through the process twice, but one of those incidents is ongoing.
The first step in the process occurs when a tenant has been delinquent for 60 days, Dewhirst explains. In accordance with her facilitys rental agreement, which was written and is updated periodically by a local attorney, the company files a complaint in civil courtin StorageStops case, the Superior Court of Ontario. Before and during the proceedings, the facility operator can charge late fees on a delinquent tenants account. If the tenant disputes the charges, the court will eventually make a judgment, though how long that takes can vary widely.
The judgment may allow the operator to file lien paperwork with Service Canada, a government agency similar to the U.S. Department of Motor Vehicles. Once the agency has processed the lien, the facility operator has the right to sell the property. However, StorageStop has never had to conduct an auction.
If we were to get a lien on an indoor unit, then we might do auctions, Dewhirst says. But thats not something weve had occasion to do yet. In the case of vehicles, we just sell the vehicle. We put it out front with a sign on it and return to the tenant whats above and beyond what was owed to us.
Dewhirst admits the process in Ontario is arduous in comparison to other places. When I see people who post on [Self-Storage Talk] who only have to wait three months before auctioning off a unit, Im aghast, she says, adding that she would like the process to be simplified and expedited. For example, she would like a clause that says if a tenant has not paid in six months, the unit can be considered abandoned. Otherwise, its tough for an operator to decide whether its worth taking a claim all the way through the process.
With most of the people who default, were not going to be able to recoup all, if any, of the losses, she says, noting the high cost of going to court. Were able to file for recovery of court costs, but if the defendants wont pay what they owe already, theyre not going to pay for that, too.
British Columbia: Choosing Which Act to Follow
Whereas Ontario has a statute specifically mentioning storage, British Columbia, Canadas third most-populous province, puts operators in a position where they must interpret multiple statutes and pick the one that applies to them. One option is the Warehouse Lien Act; the other is the Real Estate Services Act, enacted in 2004.
An owner-manager in British Columbia who prefers not to be named says his 60-unit, 16 RV-storage facility in a small town adheres to the Warehouse Lien Act. He describes the statute as really old and not really applicable to self-storage. But when he started his operation, also in 2004, his attorney advised him to use this statute and align his rental agreement with it.
The owner sees several problems with the act, most notably that it doesnt specify a timeframe for the beginning of lien procedure. It does specify the timeframe for sending out registered letters to delinquent tenants and how long an operator must wait before auctioning, as well as an auction-announcement publishing requirement two weeks before an auction. However, that creates other problems, the operator says.
For example, what if he hauls all of a delinquent tenants goods to the auction site (his auctioneer prefers a neutral location as opposed to the storage facility itself), and the delinquent tenant pays at the last minute? Does the tenant have the right to keep his space? The law doesnt specify what should happen. In one instance, a tenant paid one day before the owner was ready to remove the belongings from the unit. He said it was very close to being a legal mess.
By contrast, Jay Lynne Fleming, president and CEO of Storage for Your Life Solutions Inc. in Vancouver, says her facilities operate under the Real Estate Service Act. [It] is much clearer with respect to its process because it deals with physical buildings as rental space instead of warehousing. We as self-storage owners are only in the business of renting space. We do not occupy the space; the tenants belongings occupy the space. Theres no reason its not rental of property, just like youre renting an office, an apartment, or a garage for your car, she says.
Unlike some statutes, the Real Estate Services Act doesnt allow the operator to take possession of someone elses goods and sell them. Instead, it allows the operator to charge late fees, just like a landlord would to an apartment lessee. After 45 days of delinquency, the landlord turns the bad debt over to a bailiff. This is similar to turning someone over to a collections agency in the United States.
The bailiff, a private, non-government entity with the legal authority to assume the debt, buys the debt and tries to collect the funds. If the delinquent tenant pays the bailiff, he can keep his space. If not, the bailiff assumes possession of the unit contents, and the facility gets its space back without liability.
The bailiff may also examine the goods and determine they have no value. In that case, the facility operator calls the tenant and offers him the chance to remove the items, because the operator has already minimized his own damage by selling off the debt. The operator could also elect to throw the items in the garbage, donate them to charity or hold some kind of charity sale.
Fleming says the act doesnt require the use of the bailiff, but she prefers it. It removes us from backlash from the customer, she claims. Customers usually pay bailiffs much faster than theyll pay you. On average, Storage for You Life is able to recoup 50 percent of its lost revenue this way. This may not sound like much, but its often more cost-effective than trying to litigate or manage some lengthy process.
Would Fleming prefer a self-storage-specific statute be on the books in British Columbia? Only if its modeled and related to the real estate act, she says. The process should be simple for the landlord, she asserts. It makes no sense to me that a lien process takes anywhere from three to eight weeks. If someone steals a product from a store, its theft. If someone overstays their time in a hotel room, they pay for that day within hours. Why should the use of the storage space be any different?
U-Lock Mini Storage 15-Point Auction Checklist
Locker #: __________ Tenant: _________________
Schedule Auction Process Checklist Verified By
57th Day Red file date: ________________________ _____
Paid-through date: ____________________ _____
Last payment received: ________________ _____
File Folder/Records Searched and Up-to-Date _____
11th/26th/42nd/57th Letters Sent _____
51st Day Video Look/Contents Verified: ___________ _____
65th Day Lock Cut: ____________________________ _____
Photos taken: ________________________ _____
Contents Inventoried: __________________ _____
72nd Day Registered Letter date: _________________ _____
72nd Day Ad in Newspaper: _____________________ _____
90th Day Auction date: _________________________ _____
45th Day 1st Call: ____________ Number: __________ _____
61st Day 2nd Call: ____________ Number: __________ _____
Additional Notes/Comments: _____________________________ _____
Auctioneer : _________________ Price: _________ Initials: _____ _____