The self-storage associations have been very busy in the state legislature in recent years making sure our industry lien laws are as good as they can be. There have been many successes, and much has changed. For this reason, it’s critical to check your state law periodically, and definitely double-check it before you conduct a lien sale. To help you keep pace, I’ve highlighted some important reminders and trends below.
Why Lien Laws Matter
To industry professionals, issues of self-storage operation, management and law are, hopefully, second nature. But many of your customers simply don’t “get it.” They don't understand there are laws that allow storage operators to take a tenant’s personal property and sell it to the highest bidder when rent becomes delinquent. That ignorance may result in your tenant hiring a lawyer, who also doesn't get it; and the next thing you know, you’re in court.
So, let's remember why these laws matter. Self-storage liens are an extraordinary mechanism by which a company, without the permission of a judge or court, can literally take a person's property, sell it to a bidder and use the money to pay the past-due rent. It's amazing! But it must be followed correctly, without exception. State legislatures have given us this tool, but with the strict warning—do it properly or else!
This is a long-winded way to say watch out, be careful and make sure you do it right. Those trinkets and old clothes might mean little to you, but they’re everything to the person who placed them in that unit. They also may become everything to you if you sell them without following the law.
One of the greatest recent innovations in the self-storage industry is the ability to send lien notification via e-mail. For years, nearly every state required that these notices be sent via Certified Mail Return Receipt Requested. You had to retain a file where you kept the letter and the green card when it came back from the post office to prove you did everything right. E-mail is much easier to track and prove and is significantly cheaper.
Between 2013 and 2018, numerous states updated their lien laws to allow e-mail notices. Today, the only states that don’t allow them are Alabama, Alaska, Idaho, Iowa, Mississippi, Montana, New Hampshire, New York, North Dakota, Ohio, South Dakota, Vermont, West Virginia and Wyoming. Iowa enacted a new law that allows for e-mail notification unless you receive a message stating the e-mail can’t be delivered. Then you must send some type of verified mail. Other states in the list have laws being pushed through legislation now, so check often.
Practice tip: Think like a jury when sending out lien notices. If you send an e-mail and it bounces as undeliverable, consider sending a letter in the mail anyway. If you end up in litigation, a jury might not be kind if they see you sent an e-mail that bounced and didn't bother to spend a couple of bucks on a verified letter. Also, consider adding a “read receipt” to your e-mails so you can prove the tenant read the message. Some states require this anyway.
This is truly one of the weirdest parts of self-storage lien laws. The reality is anyone still paying for hard-copy newspaper delivery can probably afford to pay their storage fees. Further, no one other than auction bidders are reading the publications where most of these ads are placed. The idea that the general public will scour ads in general-circulation newspapers to see if their storage unit has been put up for auction is ludicrous.
In most instances, the law states you must provide a “general description of the property” contained in the unit. What does this mean? Some ads I’ve seen say, “XYZ Storage will be auctioning off personal property items from various self-storage units that may contain...” They then list every category of property possible. This is followed by a list of the units, one after the other.
This is risky. In Texas, there are no cases yet that have determined what constitutes a “general description of the property”; but one day someone will challenge whether a tiny description is good enough for every unit. In your attempt to cut corners on advertisement costs, be sure you include enough of a description that an average person will think it’s “general.”
Practice tip: Open the unit and look inside. If you see boxes, furniture, household items, books, holiday decorations and electronics, consider saying that in the advertisement. For example, rather than writing “hlsd gds/furn” consider saying “boxes, furniture, household items, decorations, electronics.” I know it costs more, but it’s definitely better.
Contractual Value Limitation
I recently represented a plaintiff against a self-storage company, which gave me great industry perspective. One of the chief issues in the case was the contractual value limitation. There were numerous arguments as to why it didn’t apply.
First, though the contract purported to limit the value of the items stored, it made no mention of limiting liability for the loss of those items. Second, the company offered tenant insurance in values higher than the value limitation stated in the contract, which made little sense to the jury. Third and most important, we argued that if the plaintiff violated the provision, so what? What’s the harm to the self-storage company? If there’s no harm, it isn’t a material breach of the agreement and, therefore, has no effect on her recovery.
Some states don’t allow limitation of value in any event. In Texas, for example, it’s allowed but likely has little effect on violations of the Deceptive Trade Practices Act in that state. Illinois has a similar consumer-protection act that might also be unaffected by such a clause. But in these states and others that allow it, you need to have an attorney in this arena look at the language and determine whether it’s enforceable, material and helpful to your defense.
Practice tip: Make sure your limitation-of-value language includes a sentence that states the tenant is also agreeing to limit his liability for any claim for any reason to the same limitation of value. Never offer insurance at a value higher than the limitation amount. That’s an inconsistent practice that should be avoided. Remember, you must convince a jury and a judge who may not “get it” that your contract and its provisions make sense and should be enforced.
As of 2018, the following states allowed online auctions: California, Colorado, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, Texas, Washington and Wisconsin. Many have strict guidelines regarding these sales. They all must pass the “commercially reasonable” test, which varies from state to state. For example, in Iowa, that means at least three independent bidders must attend or view the sale in person or online at the time and place advertised.
Online auctions are catching on, and there are seemingly no cases yet to interpret whether such sales were conducted correctly or in a commercially reasonable manner. Therefore, use caution. If you have an online auction and only one bidder participates, you may want to consider whether the risk of that sale makes sense.
Further, be careful about your photographs. I recently defended a storage company because a bidder claimed the representation in the online auction images was fraudulent. He said the items looked better in the photos than in real life. The court found in our favor, but we did have a trial.
Practice tip: Make sure your photographs are good and reasonable representations of what’s in the unit. The auction company should document the sale and how many bidders were present. It should also be willing to provide a witness at trial if you ever need one so you can prove the sale was handled according to your state's laws. Don't cut corners on this!
I could write for hours on the laws surrounding whether you should have juries, judges only or arbitration clauses. Here are just a few things consider on this issue.
Demographics of judges changes frequently. In Texas, for example, Houston has 22 district court judges for civil matters only. In 1998, they were all Republican and elected. In 2018, they were Democrat and elected. In 2020, the straight-ticket option has been taken from Texas ballots and 11 of the judges will be up for re-election. Who knows how this will affect the courthouse, if at all?
The point is, there’s a trend in some self-storage lease agreements to have a waiver of jury trial and/or an arbitration clause. I would be careful about these with the following in mind:
- Is the county/parish in which you’re located a place where the judges heavily favor individuals over companies?
- Are the juries in your area more prone to award large verdicts to individuals?
- Is your company big enough that you could be sued for a class-action related to some issue?
These are the things you should discuss with your attorney. You don't want to have a waiver of jury trials in a county where the juries are better than the judges. You don't want to have an arbitration clause, which makes the case more expensive in many cases, if the courts or juries are fair. With an arbitration, you lose your right of appeal. The point is, don't write Constitutional rights out of your agreement until you’ve fully vetted whether it’s a good idea in your area.
When it comes to lien sales, remember to be diligent about checking your state statutes. There are a great deal of changes going on throughout the country, so don't miss them.
Murphy Klasing is a partner with Weycer, Kaplan, Pulaski & Zuber P.C. He has a wide range of appellate, arbitration and trial experience, successfully handling numerous litigation matters. With more than a decade of experience in the self-storage industry, he serves as counsel for Public Storage Inc. in Oklahoma and Texas, and has defended matters involving allegations of breach of contract, code violations, employment issues, fraud, negligence, personal injury, premises liability and theft. To reach him, call 713.961.9045; e-mail [email protected]; visit www.wkpz.com.