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Self-Storage Payment Policies and the Danger of ‘Unintentional Discrimination’

Most self-storage operators have policies about when and how they accept certain kinds of payments including cash, checks and credit cards. However, if those rules aren’t clear in the rental agreement, enforcement of them could seem discriminatory. Here’s how to avoid accusations of prejudice and potential liability.

In reviewing rental agreements for self-storage businesses nationwide, one thing I notice is they sometimes fail to include certain policies that are in effect at the facility, such as those regarding tenant payments. If you have rules about when and how you accept cash, checks and credit cards but you don’t clearly state them in your contract, their enforcement could be viewed as discriminatory. It may be unintentional, but that’s how it might appear to customers.

Following are a few examples of self-storage payment policies and how to enforce them without seeming like you’re being prejudicial to tenants.

Check Payments

Your facility may have a policy that once a tenant has bounced a check with your business, you’ll no longer accept this form of payment from that person, either for a set period or forever. Or, perhaps you refuse to accept checks from past-due customers if they’re a certain number of days prior to lien sale. These are policies you’ve probably had and regularly enforced for a long time—hopefully, with consistency for every customer.

However, if you don’t state these rules in your rental agreement, your refusal of a check from a tenant in these cases could be viewed as a discriminatory action. The customer may wonder and, worse, ask a civil- or human-rights commission to look at whether you refused the payment, not because he had insufficient funds or was X days late, but because of his color, race, nationality, religion, etc. It only takes one extra line in a rental agreement to clarify this policy and avoid problems.

Credit Card Payments

Another area that needs to be clearly outlined in your rental agreement is credit card payments. Do you let tenants know in which scenarios you’d refuse to accept a credit card? Many operators will reject this type of payment before a lien sale to avoid a charge dispute after cancelling the auction. Perhaps once a tenant is X days late on the rent, you’ll only take cash or a cashier’s check. These rules need to be in writing, in the rental contract.

I receive at least one message a week from a self-storage tenant who says something like: “I’m a customer at ABC facility. I admit I was behind in my rent. I was ready to pay the day or two before the sale. I logged onto the website and found the manager had blocked me from making payments over the Web.”

These customers go on to say why they think the manager blocked them. They often think it’s a case of discrimination, when that isn’t true. Because of the risk of dispute, many storage operators set their facility-management software to automatically turn off Web payments when a tenant is a certain number of days late.

Again, a one-line statement in the rental agreement reduces the possibility that a tenant can come back and say you had a biased intention by refusing a credit card payment. Your written policy should explain the circumstances under which credit cards aren’t accepted, in person or via technology platforms such as kiosks, websites, call centers and the like.

Payment-Processing Timeline

Finally, you need to consider when your payments are processed. If your policy calls for a unit to be overlocked or the tenant to be denied gate access as soon as the payment is late, you need to consider how quickly the overlock can be removed or access re-established. For example, if the facility is closed on Sunday and a customer makes an online payment that day, when it will it be posted to his account? When will he again have access to the unit? This is especially important during holidays when many operators have limited office hours.

You need to make your timeline clear so a tenant can’t claim he was denied access to his unit even when his account was paid in full. Moreover, you don’t want him to allege the lockout was at all related to discriminatory practices. By adding just a few short sentences to your lease, you can make your policies easily known to customers and avoid potential allegations.

Ward Against Claims

Because the self-storage industry is now clearly on the radar, we’re more vulnerable to claims that were once only the purview of the multi-family asset class. While there isn’t a storage equivalent to the Fair Housing Act, civil- and human-rights commissions have proven their willingness to investigate the practices of facility operators when a customer makes what appears to be a valid claim for discrimination.

If you haven’t taken the appropriate steps to disclose your policies and procedures to tenants within your rental agreement, do so immediately. Be smart and keep your lease up to date. If you have rules in play at your facility, make sure they’re part of the written documentation a tenant receives at move-in. This way there’ll be no miscommunications, misunderstandings or bad feelings that could turn into an expensive legal claim.

This column is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney.

Jeffrey 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]

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