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Handling Self-Storage Delinquency and Collections in the Time of Coronavirus

Handling Self-Storage Delinquency and Collections in the Time of Coronavirus

The coronavirus pandemic has disrupted the way self-storage operators address tenant delinquency and collections. The rules for handling past-due accounts have changed. Get perspective on how to proceed with compassion and less risk.

You’ve heard it a million times by now: We’re living in an unprecedent time. Businesses have changed they way they operate during the coronavirus pandemic, including self-storage operations of all sizes.

Perhaps one of the most significant areas of adjustment for our industry is tenant delinquency: how we now handle late fees, collections and lien sales. Some municipalities have passed new legislation that affects how operators can respond. Others have simply issued policies and recommendations. But as states attempt to resume “business as usual,” we must determine when and if it is safe for us to proceed in managing delinquent accounts. Whatever that process looks like now, it’s different.

Sensitivity and Caution

In the not-so-distant past, collection procedures for delinquent self-storage accounts were straightforward. We had a late-fee schedule explained in our lease agreement. When a tenant became past-due, we would follow a simple communication plan with many touchpoints to let him know he was late. If not paid by a certain date, the account would go into lien status.

Fast forward to summer 2020. Social-distancing efforts have made the simple act of dropping off cash or a check more difficult, and some operators won’t even accept cash for sanitation reasons. If checks are being mailed, they take time to arrive, which can cause lateness. A renter might also miss a payment due to illness or because he’s caring for a loved one who’s sick. Perhaps there was even a death in the family.

The job market is also in flux, and many people no longer have a steady income. We might start to see long-term accounts go delinquent for the first time. As some tenants’ cash flow dwindles, they’ll need to prioritize, and their storage rent might fall to the bottom of the bill list. Even though they want to honor their commitment to your business, there simply may not be available funds.

Now, thanks to COVID-19, it’s imperative to treat delinquent tenants with more sensitivity and care than ever before. Delicate communication is of the essence. Whether collections are conducted in person, over the phone, or via text or email, consider the message and tone. The goal is to encourage payments, not punish your tenants. Continue to be firm in obtaining a projected payment date from a delinquent customer, but treat any hardship he might be experiencing with compassion. Owners should allow managers to waive late and other delinquency-relate fees on a case-by-case basis.

Legal Aspects to Consider

As always, there are legal aspects to consider when dealing with delinquent accounts, but now more than ever. First, you must investigate all local and state ordinances regarding late fees and foreclosures. Self-storage lien sales are a form of non-judicial foreclosure, so it’s important to look at mandates that impose a moratorium.

In North Carolina, for instance, the governor extended a moratorium on foreclosures through June. Another example is Texas, where a statewide moratorium was in effect in June as well, but the city of Austin added requirements for foreclosures into July. The Los Angeles City Council also passed an ordinance in June requiring self-storage operators to suspend rent and late fees for tenants who are unable to pay due to the coronavirus pandemic.

Joe Doherty, senior vice president and chief legal and legislative officer for the Self Storage Association, wrote in a recent article that in regard to these moratoriums “the term ‘eviction’ or ‘foreclosure’ is meant to cover any unilateral action by an operator that terminates a rental agreement. This statement reiterates the importance to review all orders and any future ordinances regarding evictions and foreclosures. This certainly covers lien sales, even if the primary purpose of a lien sale is to recover unpaid rents.”

Self-storage operators must review all mandates before proceeding with lien sales. If a customer with a delinquent account claims to have the coronavirus and is therefore unable to work, we are advised to not question that claim.

Options to Relieve Debt

It may sound like we’re simply supposed to accept higher delinquency and debt as the “new normal,” but by no means is this true. Thankfully, there are still plenty of ways to help tenants get current and vacate their units.

Many of us are using technology to offer contact-free rentals during COVID-19, and we can leverage it in communicating with customers, too. Several industry vendors are making it easier to text customers regarding upcoming payments, for example. We can also use technology provide more flexible payment options, using online and over-the-phone systems. Some customers might even prefer to pay by text.

We can offer delinquent tenants a payment plan or a percentage pay-to-vacate deal. In these situations, the customer agrees, in writing, to pay a certain amount of what’s owed and move out of the unit by a certain date.

These alternative options had been used sparingly before the health crisis, but now, they might become a common way for customers to avoid lien status. Plus, facility operators can reap some of the money owed and get the unit ready to rent again.

When All Else Fails

If you’ve exhausted all options and the account is still delinquent, then what? Again, look closely at local and state ordinances regarding lien sales. Many of the mandates have been written in haste and are vague, so consider consulting an attorney. If you’re in an area where lien sales can continue, closely adhere to the state’s lien process, just as you did before the pandemic.

When I began my self-storage career as an assistant manager, my boss reminded me that we are in a for-profit business. Meaning, the effort to make money must go on. If your city or state has enacted a stay on lien sales, try the options above and agree to payment plans and pay-to-vacate deals with delinquent tenants.

In this COVID-19 environment, proceed with caution and sensitivity, but proceed. There will be customers who’ll take advantage of the situation, but by having excellent managers at our facilities, those tenants can and will be sifted out from those who become delinquent solely due to crisis-related hardship. The popular saying these days—we are all in this together—needs to ring true as the self-storage industry continues to operate and evolve.

Steven Jeffers is a facilities asset manager for Bee Safe Storage and Wine Cellar, which operates 12 self-storage facilities in the Carolinas. His experience and knowledge includes local marketing, management optimization and leadership training. For more information, e-mail stevenfjeffers@gmail.com; visit www.beesafe.com.

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