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4 Legal Nightmares Being Faced by Self-Storage Operators in 2019

There are many risks involved with operating a self-storage facility. Here are four legal “nightmares” you could face this year and how to prevent them from keeping you up at night.

Much has changed in the self-storage industry in recent years, so it’s time to review my list of legal issues that keep me—and many facility owners—up at night. Some are familiar, while others are new nightmares, my friends. Here are four common concerns as well as how to reduce your risk.

Rental Agreements

Are you keeping your rental agreement up-to-date? After the last several years of legislative victories by the Self Storage Association, it’s extremely likely that your state statute has been updated or improved. Changes might include:

  • More/better ways to send default notices
  • Adjustments to the requirement, frequency or type of advertising needed prior to lien sale
  • The ability to tow a vehicle in a defaulted space, sometimes to the exclusion of selling it
  • Improved protections under the contractual value limit in the rental agreement
  • A safe-harbor late fee
  • The ability to host online auctions
  • The ability to sell contents insurance to your tenants

If you haven’t been paying attention to your state laws, your rental agreement could be significantly behind the times. Moreover, if you haven’t made some of the changes that are mandatory under an updated statute, your agreement may be a handicap rather than offer protection.

Some statutes have been altered to require new or updated mandatory language in the rental agreement, which might even need to be stated in a conspicuous manner. There are some states that now allow for e-mail of default notices, but only if you get some form of affirmative consent from the tenant. You might need to apply for a limited-lines insurance license in your state to sell contents insurance. The list goes on.

If you haven’t conducted a contract review against your statute on your own or with a trusted attorney, you’re gambling your entire business against a thousand or so dollars in legal fees. Make sure your agreement is legally compliant and up-to-date with your statute.

Tenant Insurance

Have you switched from asking new customers if they wish to purchase tenant insurance or a tenant-protection plan to requiring it? If you haven’t caught up with this trend, 2019 is the year to review your position on this subject.

When you meet with tenant insurance/protection vendors, they may give you a list of good reasons to offer their policy or plan. My rationale is far more basic: If all your tenants are covered in some way, then when there’s a loss or disaster—especially if you’re somehow alleged to be at fault or negligent—your tenants will be entitled to receive checks from the provider in lieu of bogging you down with attorney letters threatening litigation.

Just in the last few months, I’ve been dealing with several large facility fires, earthquakes and, as always, break-ins. While I would never argue that an earthquake is your fault, when a tenant doesn’t have coverage for his personal property, he’s going to try to make you pay for that loss. When you have a tenant insurance/protection plan in place, his focus shifts to making a claim against that policy rather than the facility.

Presuming the insurance policy or plan pays most of the time, the settlement of a claim requires the tenant to sign a release before getting paid. To receive his check, he waives his claims against you, the facility operator. This is the fastest and easiest way for him to be reimbursed. Moreover, once that release is signed (assuming it’s done properly), you shouldn’t be hearing from your tenant or his attorney about any other claims arising from that loss. Tenants are much happier when they get payouts in this manner, thereby avoiding the potential for unpleasant social media rants against your business.

It absolutely stinks to have to look a customer in the eyes, tell him there’s been some sort of catastrophe, and it wasn’t your fault. He lost everything and, sorry, he didn’t have insurance. One of the things that keeps me up at night is operators who still only suggest contents insurance or protection plans rather than requiring proof of insurance and, in lieu of that proof, enrolling tenants in the available plan.

The Class-Action Lawsuit

The self-storage industry has grown so much over the past decade that it’s now on the radar of class-action attorneys. Every few weeks it seems another class-action lawsuit is being filed against a storage business.

These suits involve all sorts of things. Generally, the late-fee class actions are gone because of the efforts to get a safe-harbor late fee in many states. However, there are still many lawsuits relating to employee overtime, which can be easily prevented by reviewing your policies for pay and hours worked by your onsite employees. We’re seeing many new lawsuits over other issues that are fully predictable and controllable. There’s no way I can cover them all in this article, but let me highlight two of them.

First is the lump-sum fees (other than late fees) some self-storage operators are charging, especially when a tenant goes into default. One of the most basic tenets of contract law is you can’t charge a fee (other than a late fee) unless it’s disclosed, charged when the service is rendered and reasonable. Unfortunately, I see too many situations in which operators have combined fees when it isn’t only questionable whether services were actually rendered but whether the cost is reasonable. These lump sums are an easy target.

Here’s an example: On the 30th day a tenant is late, an operator charges a $150 lien fee that covers all related services provided up through the date of the sale, for example sending default notices, cutting the lock, taking unit inventory, advertising in the local newspaper, etc. When you charge a lump sum for all this, you’re not charging the fees on the dates when the actual services took place. You make it too easy to challenge the reasonability of these fees and eliminate your ability to rebut because you can’t break them apart.

The second class-action lawsuit type I want to mention—and the one everyone should pay attention to—relates to disability accessibility. This is about whether your facility, including your management office and storage units, are accessible to people with disabilities. It also includes your facility services.

There were several class-action lawsuits last year over website accessibility. For example, can a blind person read or otherwise understand your website? Even a requirement on the rental agreement to provide a driver’s license causes exposure. Blind people or those with epilepsy can’t have a license; however, they can have a government-issued photo ID. To ask for a “driver’s license” exposes you to a claim of discrimination.

Fees, Charges and Policies

Getting back to fees for a moment …  Are you being clear with your tenants, in your rental agreement, about the fees and charges they can incur at your facility for everything from rent default to clean-up and repair after they move out? This could be the topic of a full article.

If you’re imposing fees and charges, and you think the only place you need to disclose them is in your default or move-out notices, you’re wrong. Further, you might not be allowed to enforce those charges because it can easily be alleged that these policies were enacted without tenant consent. The problem is easy to fix by fully disclosing your fees, charges and other rules to the tenant in the rental agreement, so he knows what they are.

Keep in mind, however, that if you’re going to state a policy, you need to enforce it. It isn’t OK to include a clause in your rental agreement and then later say, “Oh, we don’t actually do that.”

As the industry continues to grow and mature, it’ll face new problems that were unthinkable five or 10 years ago. More people will look to make their living off suing storage operators, large and small, for big sums of money; or they’ll simply file bottom-feeding nuisance claims to get a quick small settlement. Fortunately, we can update our policies, procedures and behaviors to avoid claims we know are coming because they’ve already arrived at the doorsteps of fellow facility operators.

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 jeff@grbrlaw.com.

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