Self-storage operators who offer vehicle storage encounter a number of challenges unique to this business service. To ensure rentals go smoothly, they have to consider their rental agreement, value limitations, lien sales and other issues. To learn more about related risks and solutions, “Inside Self-Storage” spoke with Jeffrey Greenberger, a partner with the law firm Katz Greenberger & Norton LLP and the owner of Late2Lien LLC, a company that assists self-storage operators in automating their lien-sale notice process. Here’s what he had to share.
What are some of the legal challenges for self-storage operators who offer outdoor vehicle storage?
Vehicle storage is really a different business from traditional self-storage. There are many reasons for this, not the least of which is the value of the stored property is often going to be higher. The insurance requirements are often different, as many self-storage insurance companies don’t offer coverage on vehicles, even if you want it.
With outdoor storage, you can see the vehicle; therefore, you know its approximate value and condition, and whether it’s deteriorating or has been damaged. You also know whether it’s been broken into, infested by vermin or potentially stolen. All of these things add up to a much higher level of responsibility on the operator’s part. This all indicates a bailment as opposed to indoor storage, where you really don’t know what’s going on or what’s stored behind the closed door locked by your tenant.
How should facility operators address vehicle storage in their rental agreement?
The most important thing, particularly if you’re not renting outdoor spaces, is to ask whether the tenant is storing a vehicle. Sometimes this can unwind into many different questions, as people don’t always define “vehicle” the same as you do. You also need to ask whether a vehicle may be stored later during the tenancy and if a vehicle is going to be switched out during tenancy.
In either situation, once you realize you have a vehicle that’s going to be stored, make sure you get all the necessary information at the time of rental. Consider this the “honeymoon” phase. The occupant is willing to give you information now that he’ll never be willing to give you again, so get it.
Obtain the VIN or hull number, and the make, model, color and year of the vehicle. Most important, make sure you know, with certainty, the names of title holder(s) and lienholder(s). Too many vehicles are brought to storage that are not titled in the name of the person who’s signing the storage lease. This is an important decision for you to make. Many operators have decided not to lease vehicle-storage spaces to non title holders because of the risk that the vehicle could be stolen or hidden from others, including creditors.
Understanding the identity of the lienholder is critical because many states require you to notify the lienholder in the event of default. It’s imperative that you know who the lienholder is upfront, as this will save you time, energy and money if there’s a default. Rather than trying to obtain all this information from your state’s department of motor vehicles, you’ll already have it. Remember, the vehicle may not even be registered in your state, meaning you’ll be searching out of state to get all of this info if you don’t get it in the beginning.
Finally, connect the dots. The face standing in front of you ought to match the one on the photo ID being presented. The name on that ID should correspond with the name on the vehicle title and insurance card. The VIN or hull number should be identical to the one on the registration, title and insurance card. If any of these things fail to match, it would be a good time to decide if you can figure out what’s wrong so you can proceed, or stop the rental because you’re taking on a potential risk.
What are some concerns in regard to insurance?
In every vehicle-storage situation, there’s clearly a great concern about expenses for loss, given the value of the vehicle stored. Unlike regular self-storage where property may have limited actual cash value that you can’t even know about, in vehicle storage, the fact that you know and perhaps have even seen the vehicle adds risk that any loss or damage could result in a high-dollar-value claim.
While there’s no easy answer to this question, the best way to approach it is to have a solid, maximum-value limit in your rental agreement and a negligence or covenant not-to-sue-in-excess-of-limit clause in your agreement. While you may be aware that a vehicle is worth $100,000, you want to contractually limit yourself to a lower number in the event of dispute, loss or damage so the tenant or insurance company can’t bring a large claim against you.
You shouldn’t allow people to store without adequate and proper insurance in force at all times. You want to make yourself liable for only a limited amount of money in the event that loss or damage is your fault. We explain it as limiting your liability to the amount of the vehicle’s insurance deductible. You can’t offer to be responsible for the full amount of the vehicle. You need to think through this process and be ready for it rather than caught off guard.
Also, get a copy of the insurance card. Many operators ask to become an additional noticed party. This is different than being an additional named insured, but you want to at least be notified if there’s going to be a policy change or cancellation so you can react.
How should operators handle a default?
The issue of default is so state-specific that it’s almost impossible to answer. The Self Storage Association has worked with many state associations to modify state statutes to allow for towing. Many operators fail to realize that if there’s a lien on the vehicle, it’s superior to their storage lien—meaning that even if you could find a way to get a title and sell the vehicle, if there’s a lien, all you’re doing is working to sell the vehicle for the bank. Plus, if you don’t get enough money to cover the lien, the bank may not release it, and you’ve sold something you can’t transfer with a clear title. For this reason, in most states, selling vehicles is generally a fruitless proposition.
While many operators rue the idea that they should “give the vehicle up” to a tower or lienholder without full remuneration, the reality is a vehicle in storage default is nothing more than a great liability to you and is continuing to accrue rent you may never recover. Why let a vehicle accrue past-due rent if you’re going to be capped at some number or bound as a second lienholder to a bank lien? The goal is to get it out quickly and without liability to you, if possible, rather than incurring more rent charges, fees, title searches, etc.