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Legal Considerations Around Self-Storage Delinquency and Collections Efforts

Legal Considerations Around Self-Storage Delinquency and Collections Efforts
Sooner or later, you’ll have a self-storage tenant who fails to pay their bill. Here are some legal considerations around collecting past-due rent. These should help you be more effective at managing delinquency while steering your business away from related risk.

When ranking the most enjoyable activities you engage in as a self-storage operator, collections probably isn’t even on the list. After all, if you’ve ever been on the receiving end of a collection call or letter, you know how “fun” they can be. Still, staying on top of past-due payments is a necessity in this business. Let’s examine some legal considerations to help you be more effective in this endeavor while avoiding related risk.

Communicate, But Use Caution

Your customers should know non-payment won’t be tolerated. In nearly all things, communication is the key to success, while its lack can only breed failure. It’s especially true when it comes to self-storage delinquency. To collect rent, you must communicate with your tenants; but do it in a smart, lawful way!

First, you’ll likely make a bunch of phone calls. Keep a record of all attempts. If you wind up in court, being able to show how hard you tried to collect before you went to auction will impress the judge. Calling a person’s home or office isn’t generally considered harassment, but check your state laws for guidance. Just make sure you only share account information with the tenant who signed the rental agreement. It is not OK to call someone’s office and tell a supervisor their employee owes you money.

If you use a third-party collection agency, it’s fine to inform tenants that their account may be turned over to it. If you have an attorney, it’s acceptable to inform customers that their account may be given to counsel to file a lawsuit. What isn’t OK is to threaten those activities if you have no intention of following through. When you raise the possibility of turning matters to an agency or attorney, say the account may be handed over, not will be.

Letters are another effective communication method. When you send one for collection purposes, provide the tenant with the amount due and how you arrived at that number. Tell them where and how they can pay. Keep a copy in the tenant file for your records.

Whatever communication methods you use, keep a cool head and be nice. Tenants may react harshly, which can be difficult, but kindness is the best way to get someone to do something they don’t want to do. To avoid uncomfortable situations, begin the collections process early. Don’t wait until the debt is unmanageable and fees have piled up.

Know the Law

Collection methods that resemble actions from a “Godfather” movie are certainly a no-no. Organizing a protest in front of a tenant’s home is not OK. Posting nasty comments on social media is also a bad idea.

Of course, you knew this already! But there are less obvious activities that can get you in legal trouble, particularly with the Fair Debt Collection Practices Act. There is a federal version but also state versions. Under federal, an owner or employee collecting a debt isn’t subject to the restrictions of the act, but this can vary by state. In Texas, for example, anyone collecting money on their own behalf is automatically considered a “debt collector,” which makes them subject to certain restrictions. Generally speaking, most states prohibit practices that involve:

  • Using obscene language or name-calling
  • Threatening criminal prosecution
  • Placing anonymous phone calls
  • Making repeated calls for the purpose of harassment
  • Threatening bodily injury or harm

Common sense is a great guide here. If you believe an activity would be harassment if directed at you, it’s likely something you shouldn’t turn on your tenant. A good rule of thumb is to treat the customer as you’d want to be treated. If being nice doesn’t work and the tenant is obstinate, you can move forward with turning them over to a collection agency or attorney.

Focus on Prevention

If you just don’t want to deal with your self-storage collections or you’re concerned about the legal risks involved, you can simply do your best to prevent them! Thankfully, there are ways to minimize the need to perform these activities in the first place.

First, make sure your lease agreement is well-written, comprehensive and has appropriate language to compel people to pay on time. Also make sure that if they don’t pay, your remedies are quick and decisive in accordance with your state law. Not sure if your agreement is up to snuff? Send it to a knowledgeable self-storage attorney to have it updated. A strong, accurate and legal contract is the first step to preventing collections.

If you haven’t already, consider having your tenants sign an autopay agreement that’ll allow you to automatically charge their credit or debit card each month. And keep a backup payment method on file in case the tenant’s card expires or is cancelled. The backup might be a PayPal account or direct bank draft.

Have a collection system in place. For example, your plan might state that on day X, the first call is made; on day Y, the second call is made; on day Z, the first letter is mailed, etc. Make sure the plan identifies a particular day on which to start the lien process or send the case to a collection agency or attorney. Once you have a written strategy, stay vigilant and follow it dutifully.

Finally, remember that you’re under no obligation to rent a unit to anyone. You have the right to refuse a rental as long as that decision isn’t discriminatory. So, if you get a bad feeling about a customer, don’t proceed. For example, if a prospect doesn’t have a credit card and their check is numbered “0001,” you may not want to lease that space. If a customer comes in smelling like they just finished swimming in a liquor barrel, think twice. While the drive to rent units is strong, it does you no good if the tenant won’t ultimately pay their rent!

Following the above strategies should help you minimize collections and keep you organized for when the need arises. If you’re unsure how to proceed or have a unique situation that requires expert advice, contact an attorney who specializes in self-storage.

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; email [email protected].

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