Getting Your Due: Strategies for Resolving Self-Storage Rent Delinquency

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Collecting past-due rent isn’t a favorite task for most self-storage operators, but it’s important, nonetheless. Learn strategies for resolving tenant delinquency and getting what you’re owed or reclaiming your unit space.

Collecting revenue for a service rendered is important in any business. It’s especially critical in self-storage. Rent is your facility’s primary source of income. There may be other revenue streams such as truck rentals, tenant insurance and packing supplies, but they’ll likely never come close to the money rent generates.

While many self-storage operators define success in terms of facility occupancy, it should be based on revenue. Just because a unit is rented doesn’t mean it’s producing the income it should. It does you no good to have full units if tenants aren’t paying! Not only do you lose income, you lose opportunity, because you can’t rent those spaces to anyone else.

Your primary goal should be to get what the business is due. Consider the following strategies to collect rent from past-due tenants and get your space back for new customers.

What Does Delinquency Mean for You?

When it comes to self-storage delinquency, it’s important that everyone involved in the business understands the importance of collections and their role in keeping loss of income to a minimum.

If you’re the owner or an investor, past-due rent is money out of your pocket. Rental income is used to pay expenses such as the mortgage, utilities, payroll, marketing and more—things the facility needs to survive. You can’t afford to let any of it go unpaid. Also, consider what happens if you ever want to sell or refinance your property. A high delinquency rate can negatively impact facility value.

If you’re a site manager, collections should be part of your daily routine. Your wages and bonuses may even depend on the revenue collected each month, or on keeping delinquencies below a certain level. If you feel uncomfortable about contacting tenants for rent, remember it’s a necessary part of the job. You’re doing the tenant a favor and helping your facility thrive, which benefits everyone. In the end, it’s best to educate customers about why it’s important to pay on time or communicate with you when they know they’re going to be late.

Reminders and Attempts

Before you make any collections efforts, know your state’s self-storage laws. Your attempts to resolve debt must comply, and there are situations in which you must use caution. For example, if your customer has filed for bankruptcy, all attempts to recoup their unpaid rent must stop immediately.

When you’re clear to collect, one of the most important things you can do is create a timeline for reminders and attempts. Your goal is to help the tenant pay what’s due rather than amass fees or see their unit sold. You don’t want to harass them but rather build a good relationship. Here’s a sample schedule:

  • First call made on day five, just before the tenant is locked out of the gate
  • Second call made on day 10, just before the first late fee hits
  • Pre-lien letter sent on day 15
  • Collection attempt made on day 20
  • Collection attempt made on day 26
  • Lien letter sent on day 33
  • Collection attempt made on day 40
  • Auction notice sent on day 40
  • Collection attempt made on day 50

When you reach out to the renter, let them know that if they don’t pay within X number of days, their facility access will be restricted, or they may be charged a late fee. Educate the tenant on what fees will be applied, when and how much. Let them know what happens when and if access is revoked. It’s vital to provide these details to ensure the tenant understands what’s happening. Sometimes it’ll give them the nudge needed to get the account back on track.

If a tenant isn’t responding, don’t rely only on only one communication method. Make calls, and send emails and letters. If the tenant has agreed in his rental agreement to receive texts, you can try that, too. Also, use the tools available in your management software. Many programs allow you to schedule follow-ups and offer several options for doing so.

You can also contact the alternates listed on the lease agreement. Don’t share specifics about the account, though. Just tell them you’re trying to reach the tenant and ask if they can help or pass on a message.

When composing e-mails or texts, make it personal. Tell them that you’ve had trouble reaching them and are worried about their unit going to auction. Again, this conveys that your efforts are to help them, not just collect a debt.

Make attempts at regular intervals until the unit is paid or auctioned. Record all efforts in your management software so everyone on the team knows what actions were taken and when. Just know your limits. While it’s good to contact past-due tenants, if your outreach is excessive, it may actually hurt your efforts. If a customer says he doesn’t wish to receive your rent reminders, thank them for their feedback and enter the information in your software notes so your attempts are limited to legal letters.

Finally, make sure it’s easy for your tenants to make payments. Give them the option to pay online, over the phone, through a secure drop box or in the office. All your collections efforts are worthless if it’s difficult for customers to get their rent to you.

To Waive or Not to Waive

Eventually, a delinquent tenant will ask or demand that you waive their late or lien fees. It’s vital that your self-storage business has written policies. Some operators don’t waive any fees at all, while others will waive one per year. Whatever your rule, make sure all staff and tenants know and understand it and all customers are treated fairly. Never play favorites! Just because a tenant comes into your office to chat every day doesn’t mean you should waive their fees. This kind of partiality may lead to legal action if other tenants become aware of it.

Some self-storage operators actually like to collect late fees, as it’s easy income; but this mindset can backfire. Late fees only add to your bottom line if the customer pays. If they don’t and the unit goes to auction, it could sell for less than what’s owed. It’s always better for the tenant to pay his rent, with or without a fee attached.

Make a Deal

It’s never desirable to take a unit to auction. You might go months without payment, and if the space goes to lien sale, you may only recover a fraction of what’s owed. Thankfully, there may be another way to collect at least some of the money due. Consider making deals with past-due tenants or ask them to forfeit their unit to the company without owing anything further.

If you don’t love this approach, consider that it may help your business in the long run. As long as a space is in lien status, it’s unavailable for a new customer who would actually pay. The goal is to collect something and have that unit ready to rent as soon as possible.

If a tenant wants to keep their stuff but is unable to pay the full amount, a deal may be the best solution. You can accept a percentage of what’s owed; in return, the tenant has a set time to remove their contents. It can be a win-win. The tenant keeps their stuff and pays less than they should. You recover more from the space than it might have earned at auction, and the unit is now available for a paying customer.

If the tenant has no way of paying at all, offer them an abandonment form. They’ll simply sign their possessions over to the business. You can then dispose of the contents or auction them off without penalty.

Some other things you can consider are hiring a collections agency or reporting the tenant to the credit bureaus. Either way, you’ll have to submit the information and keep it updated. While this may spur some customers to pay, you might only receive a percentage of what’s due.

Whatever route you take, know your state’s self-storage laws and follow them to the letter. In addition, any agreement you make must be with the person who signed the lease, not an agent, contact, family member, etc.

Start With Prevention

While you can’t control who pays late and when, you should have policies in place for customers and staff to read and follow. A good effort begins with your self-storage rental agreement. It should be very clear when rent is due and late fees will be applied. Many tenants get confused between their due date and when the grace period ends. Managers should go over these important dates at lease signing so there are no surprises.

Again, sending reminders can help reduce late accounts. While some operators say this practice conditions tenants to rely on prompts to pay, it’s the manager’s duty to collect the rent and build relationships with customers.

Before reaching out to collect, always review your notes to see if the tenant has already agreed to pay on a certain day. If that day has passed, let them know. Remind them of their promise and the consequences of failing to pay.

Collections are an important part of operating a self-storage business. Any money owed should be recovered, if not through payment, then through auction. At the very least, you can negotiate the tenant out of the space and rent it to a paying customer. There are many options for recouping lost revenue. You just need to find the ones that fit your operation.

Matthew Eoff is owner of Enhancing Self Storage, which offers industry-related training. He has worked in several positions in the self-storage industry over the past eight years, including part-time manager, maintenance employee and area manager overseeing six California locations. With a background as a military police officer, he takes pride in analyzing situations and can translate trends and predictable outcomes. He enjoys sharing information to improve the industry community. To contact him, email enhancingselfstorage@gmail.com or follow him on LinkedIn.

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