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The Top 3 Legal Threats for Self-Storage Operations in 2017

Legal Gavel
The best way to reduce your business liability is to understand your risks and adjust your practices accordingly. The top legal threats for self-storage operators in 2017 fall into three categories: technology, ADA accessibility and court intervention.

No matter how good your self-storage business may be, there are still many laws and regulations that expose it to liability. The best way to reduce that liability is to understand your risks and adjust your operational practices accordingly. The top legal threats for facility operators in 2017 fall into three categories: technology, ADA (Americans With Disabilities Act) accessibility and court intervention.

Technology

As the self-storage industry moves further into the world of technology and explores ways it can be applied to facility operation, there’s increased risk of liability. Technology isn’t fool-proof. There’s always the risk that a system will malfunction or be hacked. Even though there are operational benefits to technology use, there can be legal drawbacks.

First, as more operators rely on online rentals and Web-based financial transactions, the risk of data breaches increases. Most of you work hard to secure your customer information, using firewalls and other Internet-security protections, such as encryption. When it comes to credit or debit card payments, you work with your merchant-services providers to ensure your systems comply with the Payment Card Industry standards and other regulations. However, there are no guarantees against a data breach.

If you’re using a website to transact business, it should meet certain requirements relating to consumer protections. For example, it must be easy to use, readily understandable for a typical consumer, and accessible to those with disabilities. As such, it should use legible fonts, clear buttons for acceptance of terms and, if possible, visual and audio methods for describing facility services.

Further, the website must contain information regarding the privacy rights of the user, specifically how customer information is gathered and used. Depending on the state where your company’s principal place of business is located, the website privacy policy will need to include certain warnings and a clear point of contact for consumer complaints. You should rely on your Web developer to verify accessibility compliance, and then ask your lawyer to confirm your privacy policy is up-to-date under the current applicable laws.

This technology concern can also expand to systems that are subject to occasional failure, including management software, payment processing, kiosks, gate systems and security cameras. If you’re using technology to manage your facility, you must make the effort to maintain the systems and be prepared to update them as necessary to avoid operational disruptions.

ADA Accessibility

Beyond liability arising from technology, there are other legal threats to storage operations. I expect to see an increase in litigation around the Americans With Disabilities Act (ADA). Title III of the ADA prohibits private entities from discriminating against individuals with disabilities by maintaining places of business that aren’t physically accessible. The act requires that places of “public accommodation”—private businesses that offer goods and services to the public, including self-storage facilities—remove architectural barriers that limit access to or use of the location.

The ADA requires that small businesses remove architectural barriers in existing facilities when it’s "readily achievable" to do so. This means "easily accomplishable without much difficulty or expense." This requirement is based on the business’ size and resources. Companies with more resources are expected to remove more barriers than those with fewer resources. Barrier removal may include:

  • Providing an accessible route from a parking lot to the business entrance
  • Installing an entrance ramp
  • Widening a doorway
  • Installing accessible door hardware
  • Repositioning shelves
  • Moving tables, chairs, display racks, vending machines or other furniture

Although self-storage operators are subject to all the ADA building-access regulations applicable to structures generally, the act also includes space accessibility "scoping requirements" that apply specifically to self-storage buildings and doors. These require that if the property has fewer than 200 units, then 5 percent of a facility’s units must be accessible. If it has more than 200, then 10 units plus 2 percent of the remaining units must be accessible.

In addition, the ADA-compliant units must be dispersed among the different "classes” of spaces provided. Since the term “classes” is undefined in the ADA, it could mean either the size or type of unit (i.e., climate-controlled).

That said, if you have more unit classes than the number of accessible units required, you don’t need additional accessible units just to have one in each class. There also appears to be no need to disperse the accessible units among buildings in a multistructure facility. As with hotels, there appears to be no requirement to hold the unit back from rental solely for a disabled customer if other spaces are otherwise rented and the space is needed.

There’s been an uptick of lawsuits filed by disabled consumers who file claims for themselves and on behalf of others. Sometimes these individual plaintiffs and their lawyers file dozens if not hundreds of lawsuits against all types of properties including restaurants, office buildings, movie theaters and self-storage properties. Although there may be merit to these actions relating to technical violations of the ADA, most are filed solely because of the financial incentives granted to lawyers under the ADA. The statutory recovery of fees make these cases attractive.

Court Intervention

Finally, there are two court-related challenges that may impact self-storage operators this year:

1. The effort to weaken the enforceability of exculpatory provisions found in self-storage rental agreements

2. The effort to reverse the enforceability of class-actions waivers found in standard arbitration provisions to manage tenant disputes

Over the years, the courts have struggled with the enforceability of the “release of liability” provisions found in all contracts, not just those included in self-storage agreements. These provisions seek to release landlords and other contracting parties from responsibility for all types of risks that may arise from the contract at issue. When it comes to self-storage, these provisions are based on the non-bailment relationship of the parties and the fact that the storage operator takes neither care, custody nor control of the stored goods. A typical provision might read:

“Release of Landlord’s liability for property damage: All personal property stored within or upon the space by Tenant shall be at Tenant's sole risk. Landlord, Landlord's agents and/or employees shall not be liable for any loss or damage to Tenant's personal property stored at the self-storage facility arising from any cause whatsoever including, but not limited to, burglary, mysterious disappearance, fire, water damage, mold, mildew, rodents, insects, Acts of God, the active or passive acts or omissions or negligence of the Landlord, Landlord's agents, and/or employees.”

However, there have been cases—usually state-law dependent—that have held this type of release as too broad, and no release should exclude liability for a landlord’s negligence. Other courts have held that while ordinary negligence may be released, a landlord shouldn’t be free from liability arising from gross negligence. As these types of provisions grow weaker, it becomes more important for storage operators to require:

1. That their tenants have insurance for their stored goods

2. That their tenants have sufficient insurance to cover their own risk of claims that may otherwise survive this type of release provision

The other court-intervention concern involves arbitration provisions in contracts and, specifically, the ability to enforce class-action waivers contained therein. It isn’t surprising that class-action lawsuits are starting to surface against self-storage operators, since the industry is a perfect breeding ground for this type of litigation. Each facility has a large number of tenants who all sign the same lease, pay the same fees and charges, and are processed under the same state lien procedure. If a claim can be developed against a self-storage operator, the class can easily be determined based on the tenants who occupied the facility during the period under which the alleged wrong occurred.

One method to control such claims is to use a rental agreement that contains arbitration provisions to handle disputes as well as a class-action waiver. The waiver would allow that although individual tenants may retain their right to assert claims against the storage operator, they’re not entitled to create a class to pursue those claims.

There’s recently been an effort by the plaintiffs’ bar—a group that benefits from class-action litigation—to restrict the ability of businesses to avoid class actions, either by their employees or customers, via these waivers. In other words, the effort has been to contend that it’s unfair to restrict parties from filing class actions if that’s the most appropriate way to “right a wrong.” Although the courts have so far continued to support these waivers, the effort to fight this type of dispute-resolution provision continues to grow.

These are but three of the significant threats self-storage operators face this year. The best way to combat business liabilities is to be prepared. Be informed of legal dangers by speaking with your attorney, participating with your state self-storage association, and reading online resources. Once you understand the risks, you’ll be ready to face any issues that come your way.

Scott Zucker a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, which specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Zucker is a frequent speaker at self-storage industry events, author of “Legal Topics in Self-storage: A Sourcebook for Owners and Managers,” and a partner in the Self-storage Legal Network, a subscription-based legal service for storage owners and managers. For more information, call 404.364.4626; e-mail scott@wzlegal.com; visit www.wzlegal.com.

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