June 1, 2004

8 Min Read
What Are You Offering?

Issues of Truck Rental

By Jeffrey Greenberger

Many self-storage operators offer the use of a truck atmove-in as an incentive to prospective tenants. There are certain pitfalls andissues of which owners should be aware before deciding to offer this service.This column does not discuss whether you should offer trucks from a nationalrental company such as U-Haul, Budget, Penske, etc., but whether you should makea rental truck available to your tenants. The most important issues to considerare how to handle promotions, liability and insurance.

What Are You Offering?

One of the most important issues involved in offering truckrental is clearly defining what you provide. I am reminded of a story industry-consultant Jim Chiswell uses as his cautionary tale. Jim discovered one facilitysYellow Pages ad that read, Free truck with move-in. Some smart-aleck wentto that facility, rented a space, and started giving specifications for the typeof truck he wanted in exchange for his move-in. Therefore, the first lesson isto be extremely careful in how you phrase your truck offer.

The second important lesson is to make sure your rules andregulations regarding use of the truck are clear and in writing, and that youfollow your own rules at all times. Because rules apply to the use of the truck, you must includethe following statements in any advertising: Certain rules and restrictionsapply. See management/facility office for details and This offer issubject to withdrawal or change without notice. These are basic tenets of anyadvertising that addresses the issue of truck rental.

Issues of Liability

The problem with the average move-in is people tend to tradebeer and pizza in exchange for assistance with their moves. As an owner, you give your truckwhich is likely three tofour times bigger than anything the average tenant has ever drivento someonewho has probably consumed a six-pack while moving furniture. At the same time,it is impractical and inadvisable to provide any driving instruction; becausethe more responsibility you undertake to ensure a tenant can drive the truck,the more liability you assume in the event of an accident.

While state law generally says the liability for operation ofany vehicle follows the driver, not the owner, there are legal concepts, such asagency and negligent entrustment, any lawyer may raise in a lawsuit to imply theself-storage owner, operator, manager, etc., is responsible for giving the truckto someone who did not know how to drive it or may have been impaired during itsuse. Therefore, it is important to ensure you have the best possible insurance,with the highest possible limits and the fewest exclusions, to protect yourselfand your business.

Follow the rules set by your insurance provider, for example,confirming the operator of the vehicle has a valid drivers license. Also, thesize of the truck you may lend varies from state to state and, in all states,certain truck sizes require a commercial drivers license. Therefore, make sure the truck you have purchased or leased islegally operable by someone with a standard automobile license.

Insurance

Unfortunately, there appear to be few companies that willinsure rental trucks on behalf of self-storage operators, even though theliability follows the driver. Nevertheless, insurance is available and, as long as you canafford its costs (plural intended), you should generally be well-protected.

When shopping for insurance, you will need to ask thefollowing questions: What type of documentation does the insurance companyrequire you, the operator, to review and keep about the driver? Does theinsurance company require a photocopy of a drivers license, motor-vehiclebackground check and/or proof the operators license is in good standing withthe Bureau of Motor Vehicles? By the way, these issues become extra-complicatedwhen you are dealing with tenants from out of state.

You also need to understand how insurance deductibles apply.There may be more than one. The deductible normally applies to thecollision-damage portion of a claim. Most insurance is set up similarly to that of a car-rentalcompany, which has insurance to protect itself from liability arising fromoperation of the vehicle, including damage to property and injury to others.

A second component of the insurance covers collision damage tothe actual rented vehicle. This coverage is designed to be secondary to thedrivers personal automobile insurance; but unlike with a car rental, itappears approximately 90 percent of all personal auto policies now excludecollision and/or liability coverage when the insured rents or operates a truck.Therefore, the secondary insurance coverage you think you are buying for theoperator/tenant often becomes the primary collision insurance, even if thetenant has good, valid automobile coverage for his own car.

What does this mean to you? There is a deductible that appliesto these collision policies. You certainly should be aware of it, because at theend of the day, if your tenant causes collision damage to the truck, the firstsome-odd dollars in repairs (whatever the amount of the deductible) must be paidby your tenant before the insurance will cover any portion of the claim. If thetenant is not solvent enough to pay for that damage, the responsibility fallsback on you. It becomes your problem to recoup this money from the tenant.

If the truck is a complete loss or severely damaged, thecollision coverage will cover its replacement or repair, minus the deductible.If the tenant cannot pay the deductible, you will have to. Then there is the$300 damage to a side panel, $500 damage to the roof and $850 damage to thelift-gate that quickly become your expenses if the tenant is not willing to pay.This has caused many operators to become creative in their policies regardingfree truck use at move-in.

Some operators charge an insurance premium in the form of acollision-damage waiver to reduce (not eliminate) the tenants allegedcollision deductible. In theory, this fee builds up a reserve against which youcan pay for damages caused by tenants who are unable or unwilling to pay. Keepin mind: This may be the unlicensed sale of insurance. An operator should checkwith his own legal counsel and insurance broker to determine if this plan ispossible.

Other operators have changed their policies so their truckrental is free for a limited number of hours, then they impose a per-hour rentalcharge. Usually, unless a large-dollar lease is being signed, the free period istwo to four hours, which is often insufficient for the job. In this case, thetruck provides revenue in hourly charges, which helps defray the costs of theinsurance, loss and damages.

In Practice

I discussed this column with Kirk Nash of Texas-based On TheMove Inc., a supplier of trucks and insurance for this type of business. Nash says 90 percent of collision-damage claims actually resultfrom operation by the facility owner or managers or their family members, nottenant use.

Because employees are accustomed to driving the vehicleunlikenovice tenant drivers who are cautiousthey tend to be more careless. Themajority of damage they cause is to truck roofs and sides; therefore, operatorsmust be certain the collision policy they purchase does not have exclusions fordamage that occurs from problems with height or width clearance.

The standard insurance policy from a company such as On TheMove provides $5 million worth of liability coverage for damage or injury toproperty or people while the vehicle is being used by a tenant. This insurancesolely protects the owner/operator of the facility. Again, ownership shouldgenerally not be liable for injury or property damage; however, it would befoolish not to have coverage for the facility in the event the storage owner issued and somehow held responsible.

As for collision coverage, the amount you need depends on thevalue and condition of the truck you are renting or lending. There is no set recommended amount; however, it should be enough to cover the truck in the eventit is substantially damaged or lost.

Final Considerations

You must understand all the costs involved in lending trucksto tenants. First, you will have a lease or purchase payment on each truck, aswell as monthly liability-insurance payments. You also assume the risk of atenant causing damage for which he cannot or will not pay. Determine whether thecost of these expenses can be absorbed into money received for use of the truck,or if the trucks marketing value makes it financially viable. From a legalstandpoint, as long as you have excellent insurance and follow the requirementsof your insurance company, you can provide this service to tenants without toomuch concern.

Consistency will be the key to success. Every customer must be offered the same terms and conditionsof use as any other using the truck. I am not suggesting you cannot runoccasional specials; I am saying everyone who qualifies for a special should besubject to the same rules. You must know the requirements of your insurancepolicy and follow them. Make sure tenants properly complete all rental formsprovided by your truck-leasing company or attorney, and that they receive a fulldisclosure of all costs. If you do all of the above, you should be able to safely lend trucks to your tenants.

This column is for the purpose of providing general legalinsight into the self-storage field and should not be substituted for the adviceof your own attorney.

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

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