Operating a self-storage facility that provides storage for boats, RVs and other vehicles comes with special requirements and challenges. In particular, there are many legal aspects to consider. To get insight to these unique business risks, Inside Self-Storage interviewed industry attorney Scott Zucker, a partner in the Atlanta law firm Weissmann Zucker Euster Morochnik P.C. Read what he has to say about the judicial side of the business, including zoning restrictions, rental agreements, insurance and lien sales.
How do the legalities of vehicle storage differ from those of traditional self-storage?
There are significant issues that separate conventional personal-property storage from the storage of boats, cars and RVs. Some involve the fact that vehicles and boats are titled property, which affects the storage operator’s lien rights.
Another significant issue is many properties aren’t even zoned for such storage use, especially if it’s outdoors. Unfortunately, depending on any variances the facility owner obtained to get the property zoned for self-storage in the first place, he may have given up the right to use any of his property for outside storage.
Even if outside parking is allowed, local ordinances may prevent the operator from parking boats or vehicles that are within a certain distance from the roadway or those that are in noticeable disrepair. Before starting any outside storage, it’s always best to check the local zoning restrictions and ordinances to avoid later governmental intervention into your operation.
How should facility operators address vehicle storage in their rental agreement?
Most self-storage rental agreements are written with the expectation of tenants storing personal property, such as household furnishings, in enclosed storage units. Unfortunately, when those rental agreements don’t consider boat, car and RV storage, many of the potential liabilities of this type of storage are left unrecognized. For owners who’ve opened their premises to vehicles, especially those that allow storage in enclosed spaces, they need to consider amending their leases or creating addenda to their current lease to address these liabilities and, hopefully, reduce their occurrence.
Tenants who are storing motor vehicles or boats must provide specific information to the facility such as a description of the property being stored; the vehicle year, make, model and color; a license number; and any type of vehicle-identification or serial number. This information is extremely helpful if, at a later time, the tenant fails to pay rent for the storage and a foreclosure and sale is required.
The facility operator must also obtain information concerning any prior security interest or lien claims that apply to the vehicle. The language in the addendum would read, “Tenant agrees to provide to Owner all information of any and all parties holding any security interests or liens on the property stored.” The addendum should provide space for the tenant to name those parties and provide addresses and phone numbers.
Are there different insurance requirements for boat/RV-storage operators?
Certainly, there’s a greater need for insurance on a car or boat than what might normally be required for household furnishings. Facility owners should presume the vehicle to be stored has considerable value, and claims arising from the loss or damage to the property would be high. Therefore, there needs to be a provision in the addendum that specifically discusses the tenant's need for insurance.
Additionally, the addendum should require the tenant to provide copies of all documents that demonstrate proof of insurance for the vehicle. The storage operator shouldn’t allow a tenant to store a motor vehicle or boat on his premises unless the tenant can provide proof of suitable insurance for the replacement value of the property.
Since the likely value of the vehicle being stored will exceed the “limitation of value” provision in the storage lease, it’s important that the operator be prepared to address the question, “Can I raise the value limitation?” The answer is the limitation can be increased, by written agreement, if the tenant is willing to pay a higher rent. This is to cover the increased cost to the facility for insurance for the higher value limitation.
Whether or not the value limitation is increased, it’s important to let your tenant know he’s primarily responsible for the risk of loss or damage to his stored property. The tenant should always have insurance for the vehicle being stored. In fact, it’s suggested that having proof of insurance should be a condition for storing property at your facility. The law is clear that as long as a tenant has insurance, he’s obligated to look first to his insurance for reimbursement for the loss. Therefore, the more insurance the tenant is holding, the less likely the facility operator will be looked to for compensation.
How should operators handle a default when someone is storing a vehicle?
Both the rental agreement and any addendum should reiterate the storage owner's lien rights on the property stored in case of tenant default. The documents should state in bold language that the tenant's property may be sold through public sale following his failure to pay rent.
Just as each state's self-storage laws are unique with respect to the foreclosure and sale of tenants’ goods, state laws that apply to the foreclosure and sale of vehicles are even more varied. Each state has its own law with regard to how titled property can be sold.
Fortunately, many states allow titled property to be sold at public auction along with a tenant's other stored personal property. The purchaser of the auction can then apply for a transfer of title through the state's department of motor vehicles (DMV) or department of natural resources (DNR). Some states require that certain information to be provided to the court in the county in which the sale is held for the court to transfer title to the purchaser. Other states don’t allow such sales to occur unless the title is first obtained by the storage operator.
In such cases, the facility operator commonly obtains the title through procedures created for abandoned vehicles. Under this process, he makes an application to DMV or DNR that the property has been abandoned and notice is given to the prior owner of the vehicle and all secured parties. Ultimately, if no response is given, the paperwork from the DMV is provided to the court to allow the transfer of title to the storage operator.
At the sale, the purchaser of the property can be provided with a certified copy of the court order allowing the sale or the new title as issued by the DMV or DNR. As with the foreclosure and sale of other property under self-storage statutes, if the proceeds of the sale exceed the tenant's debt, the excess should be paid to the tenant. If the tenant can’t be located, the excess should be handled in accordance with the terms of the state’s self-storage statute. In some states, the money can be held by the facility operator. In others, it needs to be turned over to the local or state treasurer.
In the last few years, a number of states have included in their modernized lien laws the right of a storage operator to simply have a vehicle or boat towed from the premises by a licensed towing company in lieu of going through the lien-sale process. Typically, this towing right is permitted after 60 days of default. Operators should review their state lien laws to see if this is a viable option for them.
Do you have any other legal advice for operators who offer boat/RV storage?
When dealing with the storage of boats, RVs and other vehicles, it’s also important to include in an addendum a provision restricting specific actions by the tenant with regard to the property on the premises. The tenant should agree not to conduct any repairs or renovations on the vehicle. He should also agree to keep it in drivable condition and keep trailers and other such vehicles road-worthy at all times.
In addition, the addendum should include certain rules to follow when dealing with motorized vehicles, especially because of the potential dangers associated with the storage of fuel or oil. These should include the following:
- Motor vehicles and boats aren’t permitted to have engines run inside the storage space except upon entry or departure.
- No portable fuel containers are allowed in the space.
- All fuel tanks must be kept full at all times and must not have any leaks.
- No smoking is allowed in any enclosed storage spaces.
- Interior walls and floors must be protected from oil or spills.
Another provision that should be included in the rental addendum includes the unauthorized storage of vehicles. The agreement should specifically provide that the only vehicle permitted to be parked in the assigned space is the one described in the rental agreement. The tenant should agree that any unauthorized vehicles can be removed by the owner at the tenant's expense, and the owner won’t be liable to the tenant for the removal of such unauthorized vehicles.
A facility that provides vehicle storage can quickly become a junk car lot if improperly managed. For aesthetic purposes and to avoid the greater risk of rent default, it may be best to prohibit customers from storing vehicles that aren’t drivable, or in need of repair or otherwise inoperable. Finally, it’s a good idea to include in your rules the required use of blocks under the wheels of each vehicle to avoid movement.
When it comes to additional regulations on boat and RV storage, there are no limits as long as the policies are reasonable and consistent. An operator needs to establish rules for his facility that will enhance its operation and avoid liability.
This article is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney.
Scott Zucker is a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He’s a speaker at 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. To reach him, call 404.364.4626; e-mail [email protected]; visit www.wzlegal.com.