I’ve given up predicting what’ll happen as we continue to navigate the COVID-19 pandemic. The unexpected seems to lurk around every corner. But one thing that hasn’t surprised me is the way the self-storage industry has managed to survive and even thrive over the last two years. Facilities are enjoying high occupancies and rents.
But things may not always be this good. That’s why now is the time for operators to get their legal house in order. Make sure all your documents are sound and your tenants are in compliance with company policies. If they aren’t, you need to get them there. Here are a few things to examine.
If your self-storage facility is full and you don’t have spaces to rent, you likely have time to pull out your tenant files (literally or digitally) and make sure they’re complete and up to date. Make sure you have good information for each renter—or at least what appears to be good information—including a mailing and email address and alternate contacts. If you don’t, reach out and get it. Remember, your ability to use email for various default-related tasks depends on your having a valid address.
Also, confirm that you know the military status of each tenant. A federal law called the Servicemembers Civil Relief Act (SCRA) requires you to know this. You need your files to be accurate in the event of a tenant dispute or default. Your attorney or state self-storage association can offer you more guidance if you’re unfamiliar with SCRA requirements.
The Rental Agreement
Many self-storage statutes have changed over the last four years to allow for various priorities, such as emailing default notices, avoiding or changing lien-sale advertising requirements, allowing for towing of vehicles, and even clarifying the ability for owners to sell insurance under a limited-lines license. However, with these alterations come new requirements for what must be in your rental agreement and how it should be phrased.
Review your self-storage lease—even if there haven’t been any statute changes in your state—every three years to keep pace with industry trends. It’s critical ensure your rental agreement meets the basic requirements of your state statute so your lien rights remain enforceable.
Vehicle storage is a different business than traditional self-storage and requires more information from the tenant. Whether you’re renting space in an open lot or covered building, or individual units, you need to request details about the stored property during the lease signing. Collecting accurate data gives you a better chance of locating the vehicle owner in the event of an emergency or default. Anyone who’s storing a boat, RV, car of other vehicle must provide:
- The year, color, make and model
- The license plate number and state
- The vehicle-identification number or other serial number
- A copy of the vehicle registration
- Insurance, if you require it
- Name of ownership and lienholder
Gathering these details will help you protect your storage business and handle defaults properly. It’ll also ensure that you’re covered if there’s a loss.
Most self-storage operators have a policy that requires tenants to use a “strong” lock with a solid mechanism, such as a disc, limited-hasp or cylinder lock. Some are even using electronic locks. If you have a policy requiring a particular type of lock and some of your tenants are still using padlocks or luggage locks, this is a good time to help avoid future break-ins by insisting they resolve the situation.
Proof of Insurance
Many self-storage operations now require each tenant to provide proof of contents insurance or enrollment, or to buy into a protection plan offered by the business. Last year, my office assisted nine facilities that had experienced fires between Labor Day and Dec. 1. It was the most we’d ever seen in a three-month period. Disasters happen, so it’s imperative that you help your tenants protect their belongings.
Following a loss, most customers who have insurance will receive a payment, sign a release, and go away quietly without social media muss or fuss. However, those without coverage will also expect you to pay them, even though they signed a rental agreement stating that you aren’t responsible for their goods. In some of the fire cases mentioned above, tenants are refusing to collect what remains of their goods and vacate their units, which is delaying demolition of damaged buildings, because the operator won’t pay. Even though you aren’t legally on the hook for these losses, tenants can still create a miserable situation and obstruct your ability to restore the business.
Take the time to review your renters’ insurance compliance. Do you have paperwork for all your tenants? If you don’t offer a tenant-insurance or tenant-protection plan, institute one and begin getting your customers to sign on or provide proof of their own coverage. Remember, leopards don’t change their spots. If you have tenants who don’t want to cooperate with you now, imagine how they’ll act after a real disaster such as a fire. Now’s the time to clean up your documents.
Time to Cut Bait?
Did you know that a major cell-phone company fires its “100 worst customers” every year? It figured out that those who were the most demanding and caused the most trouble for its service representatives are never going to be good, long-term buyers. They now cut bait with those people before there’s a serious issue.
I’m not advocating that you fire 100 of your self-storage tenants, but if you have a few who don’t want to comply with your company policies—while you have a waiting list of prospects who are eager to get into empty units—this is a good time to enforce obedience or wish them well. A few small steps taken now is an excellent investment. If you’re doing as well as most operators these days, you now have the time and financial comfort to enforce your rules. In doing so, you’ll be braced for future problems.
This column 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.
Jeffrey Greenberger is a partner in the Cincinnati law firm of Greenberger & Brewer LLP. Licensed to practice in Kentucky and Ohio, he focuses primarily on representing the owners and operators of commercial real estate, including self-storage. His website, selfstoragelegal.com, contains legal opinions and insights as well as an article archive. To reach him, call 513.698.9350; email [email protected].