You may think I’m joking when I say there are things in the self-storage industry that keep me up at night, but I really do worry about how some of you are running your businesses. A storage operation is worth a lot of money, and failing to pay attention to certain details could put you at unnecessary risk of a lawsuit. Here are five things that keep me from sleeping comfortably when it comes to self-storage.
1. Failure to Understand Insurance Coverage
Do you really know what your business insurance covers? From whom did you buy it? If you didn’t get your policy from someone who makes it his business to represent the self-storage industry, you may have gaping holes in your coverage. Generally, you discover these holes only after you’ve been sued.
I’m asked at least three to five times per year to defend a lawsuit for loss or damage to a self-storage tenant’s personal property because the facility’s insurance covered only the buildings and included no wrongful-sale or disposal component. It’s irresponsible to operate your business without this coverage. You should consider additional coverages as well, including business interruption, employment dishonesty, cyber liability and hazardous-waste remediation. Consider an insurance review by any reputable company that specializes in the storage industry.
2. Unintentional Creation of a Bailment
The beauty of self-storage is you rent space to a tenant, who places his own lock on the unit and keeps the keys. If something were to go wrong inside the unit, you aren’t going to be held responsible because you’d have no way of knowing that.
Where facility operators can get into trouble is when they keep a key to the unit. There are a couple of ways problems can manifest in such a scenario. The first is when a tenant alleges the operator knew, or had the opportunity to know, that something was wrong in the unit—for example, a leak—and should have corrected it. The customer claims that by failing to do so, the business was negligent.
The second way you have a problem is when the tenant alleges something has been stolen from his unit, and only you and he have access to the space. When a customer claims you stole something and you hold possession of his key, there’s very little you can do to defend yourself. Given that some tenants may experience lapses in memory or sanity, creating an unnecessary bailment like this is foolish. This liability is simple to avoid in self-storage.
Incidentally, offering outdoor vehicle storage also creates the same type of bailment. For this reason, make sure you have a separate rental agreement for this service, and inform your insurance agent you offer it to ensure you have the appropriate coverage.
3. Failure to Understand the SCRA
The Servicemembers Civil Relief Act (SCRA) has been around since the 1940s (under different names). The act is designed to protect active-duty servicemembers (and several other categories of uniformed federal workers) from consequences that might occur while they’re serving the country.
The law was originally drafted during World War II to help servicemembers whose homes and cars were taken by repossession or foreclosure while they were off fighting. It exists for the same reason today. Among its protections is a provision that says an active-duty servicemember—and in some instances a spouse or dependent of that person—may not be foreclosed upon without permission from a court. Hint: A self-storage lien sale is a foreclosure.
At the time of rental, facility operators are required to ask within the agreement if the person renting the space is active-duty military, including the Reserves or National Guard. To avoid any controversy, also ask if he’s a spouse or dependent of an active-duty military member. The language used in some states may vary, for example, “uniformed services.” Regardless, if you don’t ask the question, you automatically violate the law.
Of the many rental agreements I review each year, less than a third even take a shot at asking about military service, let alone get the question right. This leads me to believe many of you aren’t looking at whether there’s a protected occupant/dependent prior to holding a lien sale. The consequences for violating the SCRA include civil and criminal penalties.
4. Failure to Comply With ADA
The Americans With Disabilities Act (ADA) has been around since the 1980s. While there may be some question about self-storage facilities built prior to the act, the ADA has become a real issue for the industry. Several national operators have even been sued recently because there was no way a blind person could use their websites, making them out of compliance.
You must take the ADA seriously. At a minimum, storage facilities must meet the scoping and dispersion requirements of the act. Scoping means a certain number of storage units must be disability accessible. Dispersion means ADA-compliant units must be distributed throughout the various types of units you offer.
In addition, think about other publicly accessible elements of your business, not just the doors to your units and buildings. According to recent class-action lawsuits, your website and marketing materials also need to be accessible to the disabled.
5. Failure to Update Your Rental Agreement
Self-storage facilities are often worth a million dollars or more. For many of you, the operation is your source of livelihood, or a generation-passing income or asset. For that reason, it’s worth having your rental agreement, as well as your policies and procedures, reviewed by an attorney at least once every three years. You may be pleased to learn that little or nothing needs to be updated. For peace of mind, it makes sense to spend a few thousand dollars to protect your million-dollar investment.
As case law develops and statutes are updated, attorneys learn more and more about what is necessary to protect self-storage operators and their businesses. You simply cannot ignore these changes and expect to stay clear of the vicious lawsuits plaintiffs file against the industry.
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; e-mail [email protected].
