The storage of boats, RVs, cars and other vehicles has become an exciting and often profitable service at many self-storage facilities, offering longer rental commitments with little additional maintenance expense. Unfortunately, with these benefits comes some burden for operators. Without careful planning, the profit center can quickly become a great risk for loss.
Vehicle storage is a different kind of business than traditional self-storage, particularly as vehicles are often stored anywhere but in a separate, enclosed unit. Whether you’re renting storage in an open lot, covered building or individual units, vehicle storage presents several unique issues. This article highlights key factors of offering this service.
Creating a Bailment
With the exception of vehicles stored in individually enclosed units, the first consideration is whether vehicle storage creates some sort of bailment. In traditional self-storage, if you don’t keep a key to the unit and the tenant has the ability to store and lock his own personal property, you don’t have a risk. But when you store vehicles in a common area—even if you don’t keep the keys—a bailment could exist.
A bailment is the “transfer of possession, but not ownership, of personal property for a limited time and for a specified purpose such that the individual or business entity taking possession is liable to some extent for the loss or damage to the property” (from Webster’s Dictionary of Law). When vehicles are not stored behind four walls and a door, a bailment is arguably created and you have a greater duty of care. You have a responsibility to protect the vehicle from damage, perceive issues of damage and maintenance, and report these issues to the owner.
If the vehicle is visible while being stored with you, you have a different relationship with your renter. You’ll need to amend or create operating procedures recognizing that you now protect tenants’ property, and create new lease clauses, including default clauses to address the special considerations involved with vehicle storage.
Defining the Space
It’s difficult to define the specific space being leased to a customer if you don’t have a paved, striped or numbered area for vehicle storage. It’s important to have language in your rental agreement that describes the space rented, but doesn’t define it so closely that you’ll be in violation of the lease if another renter parks in all or part of it. You should have some type of exculpatory language in your lease disclaiming a default in this event, along with some punishment rules for those who interfere with other tenants’ ability to use their spaces.
Consider having one or more spaces labeled as “overflow parking.” You can then put a provision in your lease stating that in the event an occupant ever finds the premises unusable or filled, he’s required to park in the overflow spot, and this doesn’t represent a default by the operator under the rental agreement.
Moreover, there can be lawsuits about the actual size of a space being different than that represented to the tenant in the rental agreement. This type of claim is much more likely to occur with outdoor storage space. Make sure you include lease language that indicates sizes are approximate, and you’re renting by the space, not the square foot.
Some operators go even further in the bailment and provide additional services, such as parking tenants’ vehicles and retaining keys so they can move them in and out of the way as necessary. Some offer ancillaries such as vehicle-cleaning, dump-out, stocking, warm-up and pull-out. When you provide these types of services, you have gone beyond storage, and there’s no doubt you’re in a bailment situation, and adding extra risk.
The best thing way to address these services is in your written rental agreement. You may need additions to your lease or addendums for the various types of services offered. Some vehicle-storage leases contain 20 or more addendums to support different types of related services. These addendums cover items such as dump stations, wash stations or potable water supplies.
These matters must be addressed to ensure liability is properly allocated between the storage operator and customer. For example, let’s say you provide a dump station and a tenant uses it improperly. If this isn’t covered in your lease or addendum, it’s going to be difficult to charge the tenant for the damage. Further, if you charge for any of these services, make sure costs are clearly delineated, and always reserve the right to close or terminate a service from a single tenant and from the facility.
Have your lease and other documents reviewed often by an attorney familiar with this area of the law. Also review the entire business plan to see if it’s in your best interest to set up and separate entities to hold various “risky” parts of your operation. For example, if you’re going to actually move boats to the water from your facility, you may want to hire a separate entity to handle the transportation portion of the business, with a separate contract.
Collecting accurate tenant information on your rental agreement gives you a better chance of locating the vehicle owner in the event of an emergency or default. This has never been more important, as more vehicles are now abandoned at self-storage facilities when the owners can’t make the payments.
If you have good lien and title information, the bank may take the vehicle back from you in the form of repossession and may even pay some storage charges. Otherwise, you become the “lien hunter.” It also gives you a better defense if a claim is brought against you for wrongful disposal or termination of contract. Consider requiring the following information with your lease:
- The year, color, make and model of the vehicle
- The license-plate number and state
- The VIN or other identification number
- A copy of the vehicle registration
Just as with self-storage, don’t allow more than one person to sign the lease. In addition, require your lessee to be the actual owner of the vehicle. If the name on the registration is not the same as the person executing the rental agreement, your customer must have a statement notarized by the owner that clearly states it’s acceptable to store the vehicle at the facility. Make sure you have all of the owner’s relevant information. By doing this, you will avoid the possibility of storing a stolen vehicle. You can also steer clear of issues if ownership is ever disputed.
All Potential Vehicles
As you gather information for the lease, get details on every vehicle that could potentially be stored in the space. For example, someone might store a trailer and two jet skis in a single space, which counts as three titled vehicles. Don’t forget to get information on each of them.
Many tenants will pick up one vehicle at the storage facility, such as their RV, and leave the one they drove in at the space. This creates a problem if you haven’t previously approved and collected data on this other vehicle. All of a sudden, the RV is gone and an SUV is in its place. Does it belong to your tenant? Is it insured? Is it subject to the terms and conditions of the rental agreement, which sets things like value limitation, release of liability for damage, etc.?
If there’s a chance another vehicle is going to be left in the space for any length of time, it needs to be listed as an additional vehicle on your rental agreement. If it’s not, all the trouble you’ve gone through to protect yourself on the main vehicle could be for naught, especially if something happens when the different vehicle is stored by the same tenant in the same space.
Check your state’s self-storage statute. Some states have provisions to address simple things such as the superiority of your lien to a filed or recorded vehicle lien, and complex issues such as procedures that specify exactly how to obtain a title to a vehicle in default so you can sell it.
Don’t assume you can simply go down to your local title agency and obtain a lienholder’s title any time a vehicle is in default, and then sell the vehicle at your next lien sale. This is often not the case. Even if you can get a new title, if there is a lien on the vehicle, that lien almost always is superior to your storage lien. Thus, you may do all the title work and sell the vehicle and not be entitled to any of the sale proceeds.
Vehicle storage presents a special problem because vehicles contain hazardous materials just waiting to spill, leak or explode on the property in the form of gasoline, lubricants, battery acid, tires, toilet chemicals, etc. This problem is exacerbated by the fact that vehicles are parked on soil, gravel or asphalt, which allows the chemical or spill to quickly enter the soil.
Given the volume of liquids and lubricants stored in a RV, for example, a leak or spill could create a serious environmental hazard on your property. Further, some tenants try to store extra gas, chemicals, tires, etc., in or around their property. Fortunately, there’s reasonably priced hazardous-cleanup insurance coverage, but you have to buy it separately.
Include limiting language in your rental agreement specifically targeted to the outdoor storage of vehicles, outlining how much liquid (i.e., gas) may be stored and preventing additional liquid storage. Make sure your insurance company is aware of this type of storage at your property. Also, check with your mortgage holder to ensure the vehicle doesn’t violate a term or condition of your loan.
Require a drip pan or absorbent pad designed to retain petroleum products under the parts of a vehicle that might leak. If properly placed, it can catch dripping or leaking fluids, protecting you from environmental contamination. Since very few people carry their own drip pans or absorbent pads, you can sell them as a source of ancillary revenue.
There’s also a customer-service aspect. If you ever see a drip pan or pad containing some sort of unknown fluid, you have the opportunity to call the tenant and let him know his vehicle is leaking. You’ve just saved the customer from breaking down on the road, and you’ve stopped the vehicle from causing hazard or damage to your property.
Vehicles in Default
What happens when a vehicle-storage tenant defaults on his rent? Make sure you have remedies to this situation built into your rental agreement. If your state permits removal of the vehicle by a lien right, eviction statute or towing to an impound lot, give yourself these rights in your lease. Additionally, post whatever signage is necessary or required in your state.
Assuming you have a default clause in your lease, make sure one of the remedies listed permits you to terminate the gate access of the stored vehicle. If the occupant removes his vehicle from the facility and has not paid his rent, you can then prohibit him from returning the vehicle until rent is paid. In some states, you can consider a tenant to whom you have denied access to be a trespasser if he tries to re-enter the facility.
Being able to tow a vehicle off the property helps you minimize your damages, even if you’re not able to sell it once it is towed. (In most states, selling a vehicle is complicated, expensive, and often does not result in any money for the self-storage owner because of prior liens. See above.) If you’re allowed to tow and you do it early in the default, you’ll be glad.
Rules and Regulations
Not only do you need a lease or addendums covering the aspects of vehicle storage mentioned above, you’ll need rules and regulations. For example, a vehicle in the storage area may be subject to an aesthetic requirement. You may not want to allow vehicles with rust, defaulted tires, broken windows, etc. Or perhaps you want to require vehicles be operational, currently and accurately registered, or subject to annual state inspection. Your rules and regulations may also include items such as back-in or front-in parking, and charges for occupying too many spaces or the wrong space.
If you wish to prevent your vehicle-storage area from looking like a junkyard, you must incorporate your rules into your lease. This will give you grounds to terminate an agreement if a tenant fails to comply.
It’s important to work with your attorney to incorporate vehicle-storage provisions into your lease. The best time to address these issues with customers is when they sign the lease, before you give them access to the facility.
It’s important to ask about vehicles because many people rent a traditional storage unit intending to put a motorcycle in it. If you don’t ask you won’t find out, and then you’re potentially stuck with a problem. Remember, while vehicle storage may be profitable, an unexpected problem not covered in your lease can quickly make it a losing venture.
Jeffrey J. Greenberger is a partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati and is licensed to practice in Kentucky and Ohio. Mr. Greenberger primarily represents the owners and operators of commercial real estate, including self-storage owners and operators. To reach him, call 513.721.5151; visit www.selfstoragelegal.com.