By Bernard Fensterwald
Running a successful self-storage business can be stressful at times. Things come up. Sometimes youve planned for contingencies, sometimes you havent. Its generally true that if youve 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 its 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, dont 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 tenants 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 its important to reaffirm the concept that you, the self-storage owner, must be aware of whats going on at your facility at all times. Dont 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 sites roof. The contractor, in turn, hired a subcontractor to do the actual work. The subcontractor placed the roofing material on pallets near the propertys 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 its 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 whats 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 youre going to be successful, its 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 marketthese are all fruitful areas for continuing education. Technology is an important area because its 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 courtless 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 dont understand. Then pass along what youve learned to your staff. Theyre the ones who will use this knowledge daily. If youre 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? Its just as true today, and it certainly applies to your business. Youll 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. Were 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 isnt 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 plaintiffs 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 owneryou.
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.
6. Understand Laws Governing Your Business
In a prior article for Inside Self-Storage, I discussed the importance of gaining a general knowledge of bankruptcy laws prior to receiving of your first tenant bankruptcy notice. Learn what your rights are. Understand your obligations. Plot your options. By doing this in advance, youll eliminate surprise and stress and maybe legal fees, too.
This concept is true of all laws relating to self-storage. Knowing the ground rules that go along with your business entity is essential. Ditto with your local, state and federal tax laws and regulations. Understanding zoning and building codes, public-safety rules and work-related regulations are equally important. As noted above, pay attention to your states lien law. Be intimately familiar with it and follow it to the letter.
7. Correctly Apply the Laws Youve Mastered
Once youve mastered the laws pertaining to your business, particularly your lien law, its important that you apply them correctly. Confused? Consult your local attorney. In applying these laws, its essential to pay attention to the details. No shortcuts. Meet deadlines. Follow procedure.
As noted above, your states lien law is essentially a gift from your legislature, avoiding the need to go to court to evict a tenants for non-payment and auction their property. Saves time and money. At the same time, you need to follow the lien procedure to the letter, even if it appears fruitless. Why? Because many of those details have been put in place to protect the consumer. Failure to master the details and make sure theyre applied completely each time can result in expensive and stressful lawsuit, which you might lose.
If you take away only one thing from this article, remember this: If you feel any detail leading up to an auction has been overlooked, cancel it for any unit involved and start over. To make sure the details are followed, create a comprehensive auction checklist and follow it.
8. Have a Simple and Understandable Storage Agreement
Just like the stock market, self-storage operators thrive on certainty. Covering all the bases in the relationship with your tenants is an important consideration. Through this process, you know if you get into a dispute with a tenant, youll more than likely prevail.
How do you do this? One way is by having a strong and understandable storage agreement. By strong, I mean being sure the agreement contains all of the appropriate language to protect yourself in the event of default. By understandable, your agreement should be written in such a way that you, your staff and tenants understand it.
Contracts that are plainly written are less liable to result in disputes because all parties know where they stand and can act accordingly. On the other hand, contracts that are ambiguous and not understandable often result in disputesand stressful litigation.
Consider hiring someone to draft a plain language agreement for you. Avoid legalese that neither you nor your tenants understand. Legal rights and obligations can been expressed in simple language, too. Also, have your agreement reviewed periodically to be sure it is up to date. A simple, understandable and current storage agreement will result in less stress for you.
9. Reach Out to Your Fellow Storage Operators
As John Dunne famously said, No man is an island unto himself. This is especially true in our interconnected world todayas well as self-storage, too. For a number of years, I was involved in an informal, local group of self-storage operators in the Washington, D.C., area. We met monthly for lunch and typically had a speaker on a topic of mutual interest. Im sorry this group is no longer active. Why? Because of what occurred during the luncheon prior to the speaker.
We had an open discussion between members regarding current storage issues in our area: Occupancy. New products. Managers. Marketing. What is working. What isnt. Any issue but rental rates (think antitrust here). These discussions were always valuable. Am I suggesting you form a local group? Maybe. You would benefit from it.
More important, however, is my hope that youll begin to reach out to others, including competitors for information, advice and, sometimes, comfort. Maybe youre experiencing an unexplained drop in occupancy. It may be helpful to know if it is just you or an industry trend. You can reach out in other ways, too. Join your local chamber of commerce. Start a dialogue. Different businesses, similar problems.
10. Carry Adequate Insurance
Less stress is what insurance is all about. You shift the cost of a risk from you to them. Of course, you have to pay for it, but you save the worry. In some instances, insurance is required by your lender. These coverages you already have, but what about optional coverages? Do you have directors and officers coverage to protect your board? How about coverage for wrongful auction? Coverage for your tenants property in case of fire? All of these are important to your business and will help reduce your stress.
Reach out to the number of insurance companies that offer special coverages for self-storage operators. See what they offer and compare.
Ive discussed 10 simple ways you can reduce the pressure of managing your self-storage business. If implemented, each one can lead to smoother operation, better business protection and, of course, less stress. In the fast-paced world we live in, we can all use a little less hassle.
Bernard Fensterwald is a consulting attorney with more than 25 years of experience. Hes licensed in Maryland, Virginia and the District of Columbia. He's also a principal in U-Store Management Corp., a Washington, D.C.-based self-storage company, and a past president of the Washington Area Self-Storage Association. To reach him, e-mail [email protected]; visit www.global-self-storage.com. To read his blog, see www.fensterwald.wordpress.com.