As I write this article, we’re seeing some interesting legal developments in the self-storage industry due to the coronavirus pandemic. Despite existing state laws, some towns, cities and counties are imposing restrictions on self-storage lien sales and, in some instances, late fees. This is a remarkable and somewhat frightening turn of events.
Essentially, officials in places like California and Massachusetts are conveying that despite the state law that provides a remedy to resolve nonpayment of self-storage rent, facility operators will no longer be allowed to perform lien sales or charge late or other fees to cover any expense and loss incurred as a result of tenant delinquency. I’m sensitive to the harsh realities of the COVID-19 crisis and I understand some customers are struggling financially. But to survive, owners must be able to get their units back.
Self-storage operators have no desire to sell the goods of anyone who’s seriously suffering after a layoff, or worse, missing work after contracting the virus. However, our industry has been singled out. That is, while state or federal law may have barred residential evictions to protect the economy for a period of time, city officials now claim that if people’s property stored in self-storage units were sold, it would harm the economy and is somehow unfair to tenants, that if tenants don’t pay their rent, facility owners should be left holding their goods for free.
Left unchecked, the potential consequences of these actions are chilling. The self-storage industry has spent years and untold millions of dollars to obtain state statutes that define how and when a lien sale can occur and codify reasonable late fees, only to have local governments remove these rights during the pandemic. City councils have taken matters into their own hands. If this trend were to spread, it could represent a substantial paradigm shift for our industry. Think about this:
- What happens if cities can, for an extended time, take away your limited right to a lien sale with every future crisis?
- What happens when tenants abandon their goods, stop paying and don’t tell you?
- What happens when tenants realize that because of changes in the laws, they’re no longer compelled to pay, essentially gaming the system to get free storage?
These developments should concern every self-storage operator in every state.
Some Better Solutions
Let me make a bold suggestion: If cities and counties want to prevent self-storage lien sales, they should offer facility operators rent assistance. If it’s so detrimental to the well-being of local citizens to lose their property in storage, then officials should come up with a solution to the problem rather than ban lien sales and late fees and damage an entire business category.
Here’s another solution to explore: What if cities or towns enacted legislation that prevented self-storage operators from selling a delinquent tenant’s goods if the customer were willing to pick them up within 48 hours of receiving a sale-or-disposal notice? Many operators might dislike this idea because they want the past-due amount; but if removing the delinquent tenant quickly was the only option, they might accept it. It’s better than relying on a lien-sale remedy that could be banned at any time, and for who knows how long.
There’s an argument to be made here based on equal protection under the Constitution. There’s also the argument that there are state laws already in place that substantially regulate the self-storage business. That is, in almost every state, there’s some amount of right to notice of the default. Every state that has a statute allows for the ultimate remedy of the tenant to pay what’s owed—up until the moment of sale—and save his property. This is called the right of redemption.
Likewise, most states have defined reasonable late fees, thanks to a strong legislative effort between the national and state self-storage associations. This allows for the argument that cities can’t override the state law that permits a lien sale or the imposition of a fee. Unfortunately, these things will have to be battled out in the courts rather than on a more sensible playing field.
For the moment, pay attention to the ordinances being considered in your area right now. Remind your local officials that many self-storage businesses are family-owned and can’t afford to remain open if they lose their only remedy for late payment or nonpayment of rent. The cities certainly couldn’t exist without tax revenue; and you can’t exist without rent and reasonable fees!
While I expect the larger self-storage operators will take these issues to court, keep an eye open for future updates. Let me know if you hear any grumblings or rumblings of ordinances on proposed legislation in your area.
This column is for the purpose of providing general legal insight into the self-storage field and shouldn’t be substituted for the advice of your own attorney.
Jeffrey J. Greenberger is a partner in the Cincinnati law firm of Greenberger & Brewer LLP. Licensed to practice in Kentucky and Ohio, he focuses primarily on representing the owners and operators of commercial real estate, including self-storage. His website, selfstoragelegal.com, contains legal opinions and insights as well as an article archive. To reach him, call 513.698.9350; e-mail [email protected].