By Murphy Klasing
Many self-storage companies rent parking spaces and units to accommodate the storage of vehicles including boats, cars, RVs and trucks. This is a great customer service that can generate additional revenue, but there are pitfalls of which facility operators must be aware. What happens when a tenant stops making payments? What if a stored vehicle gets stolen? What if you can’t sell a vehicle after the customer defaults? Can you sell a unit at auction if it contains a high-value vehicle? This article explores some of these legalities.
Default by the tenant for nonpayment of rent typically creates a scenario in which you can notice, publish and sell the unit contents at auction. This is true for a unit that contains a vehicle; however, most states have specific procedures for selling motor vehicles and trailers. Check with your state’s property code to determine what process is required.
What’s almost universal is you must first determine whether the vehicle has an outstanding lien or a registered owner apart from the tenant. You’ll likely need to inform the lienholder (bank, credit union, etc.) and the registered owner of the sale in the same manner that you must inform the tenant.
If you can’t find this information because the car is registered in a state that doesn't offer any information, you may need to publish the notice in a newspaper of general circulation in the county/parish where the vehicle or trailer is stored. Can't readily see or find the vehicle-identification number? Then call local law enforcement to see if officers can locate it on a part of the vehicle that may be hidden. Send the notice as required by your state, and keep proof that you sent it and when.
Overlock the unit as you would for any other lien sale. If the vehicle is in an outdoor space, use a wheel boot or chain to secure it, and then auction it. If there are no bidders and your state allows it, the facility owner can actually bid on the unit. In any event, make sure the unit is sold before attempting to obtain title for the vehicle. Check with your state's department of motor vehicles to determine what’s necessary after a sale for the buyer to obtain proper title.
It’s advisable to give the buyer a bill of sale to further “paper up” the transaction. The last thing you want is for the tenant, lienholder or other owner to sue you for a bad sale when you lack the necessary proof that it was handled correctly. Keep all foreclosure records for at least five years so you can defend any action brought against you.
If the vehicle is a high-ticket item like a Ferrari and the tenant has defaulted on rent, something is probably amiss. Use your common sense. The tenant may have died, the car may be stolen, or the owner may have obtained the car with money from a criminal enterprise. Spend a little more time investigating in this situation. Don't hop in and take it for a spin—even though it may be tempting.
The most important thing to remember regarding vehicle storage is to get as much information as possible at the time of the lease signing. If you know the tenant is storing a vehicle, require proof of title. If the doesn’t have a clear title, then you need proof of the lien and the lienholder's information. This will make things much easier in the event of a default.
As with any other property, most states don’t hold the self-storage owner/operator liable for third-party theft unless you’ve expressly provided security on the premises. Be careful in your marketing materials and lease. If you provide security to the tenant, you may be responsible if it becomes compromised. If you have cameras onsite but don't keep the video recording 24/7, you may be setting yourself up for a negligence claim.
Make sure the tenant is aware—and state it clearly in your lease—that protecting the vehicle is his responsibility. Requiring proof of insurance on the vehicle isn’t a bad idea. If the vehicle was driven onto your property, it should be insured. If it was towed, it may not be.
The main point is you don't want to lead the tenant to believe you’ll be insuring the safety of the vehicle. If he can prove you made such representations or promises, you may find yourself liable for the loss of that vehicle if it’s stolen.
Can't Sell It, Don't Want It
If the tenant defaults on rent and no one (including you) wants to buy the vehicle, what do you do? If you’re still in contact with the tenant, see if he’ll sign an agreement to release or abandon the item. This will allow you to dispose of it.
However, since this isn’t likely to work in a default scenario, you can file an eviction proceeding. In short, you’ll evict the tenant from the space and have the court issue a “writ of possession” or execution that directs the constable or sheriff to dispose of the property. In this case, you’ve protected yourself by using a court procedure instead of your own version of self-help.
If you know you have a good address for the tenant, there’s a more aggressive option you might try. Recently, a tenant verbally told a facility operator he no longer wanted the car that was parked in his delinquent unit and the facility could “keep it.” He wouldn’t, however, sign a release or abandonment agreement. The operator couldn’t determine if a lienholder existed and didn't know what to do. Ultimately, he had the car towed to the tenant's residence and parked in his driveway. I’m not sure if the customer was happy with that outcome, but he would’ve had a hard time suing the storage owner for returning his property.
Vehicle storage can be lucrative, but it comes with unique challenges. A well-written lease is the first step to protecting your business. Make sure it includes provisions for vehicle storage, and request that the tenant provide proof of ownership, insurance and any lienholder information. If he defaults, follow your state’s lien laws to legally resolve the situation. Finally, check with your attorney if you have questions about vehicles in default or abandoned units. It’s far better to do more research up front than to improperly sell a vehicle and face a lawsuit.
Murphy Klasing, an attorney with the law office of Weycer, Kaplan, Pulaski & Zuber P.C., 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 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; e-mail email@example.com; visit www.wkpz.com.