February 1, 1998

4 Min Read
Evictions and Auctions: Limiting Your Liability ExposurePart I

Evictions and Auctions:

Limiting Your Liability Exposure Part I

By David Wilhite

The self-storage business is a rental business. That is to say, the self-storage ownerrents out space for storage purposes to tenants; he does not store the property ofcustomers. He acts as a landlord, not a warehouseman. Like any good landlord, theself-storage operator's goal is to keep occupancy high and retain his tenants.Unfortunately, sooner or later, he will be faced with the task of evicting a tenant forfailure to pay rent, then have to reclaim the storage space and remove or dispose of thetenant's property. The most common way to do this is to place a lien against the propertyand hold an auction to dispose of the goods.

In general, most states give self-storage operators extraordinary leverage againstdelinquent tenants. Nearly every state has specific statutes that govern thesale-and-disposal process, as provided for in the state's Self Service Storage FacilityAct. However, if the procedures are not followed to the letter, or if there is an error inany step of the sale-and-disposal process, the self-storage operator leaves himselfvulnerable to law suits claiming loss or damage of stored goods. Even when the process ishandled correctly, it is not uncommon for a disgruntled tenant to file a claim against theoperator charging negligence in the removal or disposition of stored property.

Sale-and-disposal legal-liability insurance is an important coverage that is specificto the self-storage industry and should be considered an essential part of everyself-storage owner's business insurance package. Sale-and-disposal legal-liabilitycoverage provides self-storage operators with protection against conversion: the act ofwrongfully taking, selling, using or destroying the goods of another party. Due to theincredible diversity of goods commonly stored and the wide range of values of theproperty, the penalty for conversion can be extremely high. Recently, a self-storageoperator was held liable for $250,000 in damages by a California court for the wrongfulsale of a customer's property. The court judged that the storage owner's notice ofintention of sale was defective, since the operator's newspaper ad did not include thedelinquent tenant's name, which was required by state law. The court ruled that theoperator was in violation of negligence and conversion as a result of this error.

Many such law suits are the result of trivial errors, such as reversing the numbers onan address. The chance of an error occurring is compounded by the fact that most statestatutes generally require that several letters of notification be mailed to tenants withdelinquent accounts, and that the self-storage operator publish a legal notice in ageneral circulation newspaper in the judicial district where the sale will be held. Thereare, of course, many variations by state on these procedures, and each must be followed tothe letter to minimize the likelihood of a law suit. It pays to be careful. A trendappears to be developing in which storage operators who make minor violations of statestatutes can be held liable for very large punitive and emotional damages far in excess ofthe actual value of a tenant's stored items.

The good news is, in most cases, law suits can be avoided. If you are a self-storageoperator involved in sale and disposal, you must be aware of lien law. Consult with anattorney about preparing a written procedure that outlines the exact steps for disposingof a delinquent tenant's property. Read and follow all state statutes to the letter.Always double-check names and addresses, and don't make any changes to information on therental agreement, such as correcting an obvious misspelling, unless accompanied by asigned change-of-address card. Document, in photographs and writing, every step of theinventory and auction process. In a law suit, you will have to show proof that thedisposal of the delinquent tenant's goods conformed to state statues. And if there is anyreason to question the sale and disposal of a tenant's goods, don't sell them. Many ownersprefer to let tenants retrieve their property at no charge rather than go through thepotential liability of an auction (it is certainly preferable to defending yourself in alaw suit). Last but not least, be absolutely certain you have adequate insurance coverage.

Sale-and-disposal legal-liability insurance is not normally available through regularbusiness-insurance carriers, and generally cannot be added to a standard business-ownerspolicy. However, the coverage can be secured through insurers specializing in theself-storage industry.

David Wilhite is the marketing manager of Universal Insurance Facilities Inc.Universal offers a complete package of coverages specifically designed to meet the needsof the self-storage industry, including loss of income, employee dishonesty, comprehensivebusiness liability, hazardous-contents removal and customer storage. For more information,contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (602)970-6240; Web: www.vpico.com/universal.

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