Just like all other capital assets, your self-storage rental agreement needs to be kept up to date. Ignoring your lease is an invitation to litigation and other tenant disputes. Statutes change, court rulings refine the law, and tenants find new ways to stretch the rules. For all these reasons, you must keep your lease current for maximum protection.
As you review your document, please look for the following “minimum requirements.” Make sure these provisions aren’t only present but well-written so you and your tenants understand the terms.
Value, Litigation and Negligence Limits
First, make sure your lease includes a valuation limit and, if appropriate, a litigation/negligence-limit clause. A limitation of value requires the tenant to agree there’s a maximum value to the property he stores in his unit. By this clause, you’re not necessarily agreeing to provide insurance or to be responsible for that amount of value, or even agreeing that there is a value. Rather, if the tenant files a claim and a court holds you responsible, this limit is the maximum dollar figure the court should be able to award for the loss.
This goes hand in hand, where permitted, with a litigation/negligence limit. This clause closes the door on lawsuits that try to “get around” the value limit by restricting the amount the tenant can sue you for in negligence. In some states, a litigation/negligence cap may not be an enforceable rental-agreement provision, but a value limit is generally always enforceable—if properly written. If the value and liability limits are set low enough (but still reasonable), it often won’t be worth the tenant’s time, energy or money to bring a lawsuit against you.
Military Status
The question you must ask in your lease about active and reserve military status includes the tenant and his dependents. I recommend you also obtain the commanding officer’s name, phone number and e-mail address.
If you’re not familiar with the provisions of the Service Members Civil Relief Act (SCRA), get to know it, because you’re probably handling your military-tenant lien sales improperly. SCRA imposes upon you a duty to act in a certain manner if you know your tenant or a dependent of the tenant is in the armed forces. These sales can be problematic. Once you understand this act, you’ll know what to do if you have to sell a unit rented by a member of the military.
Charges and Fees
List your actual charges and fees in your rental agreement. No one likes a surprise, least of all your tenant. Many operators have a lease clause that states no changes to the lease are allowed unless they’re made in writing. This is normal language. However, if you don’t list all your fees and charges in the agreement, then you’re technically changing it at the time of default when the tenant may not agree, and this may not be enforceable.
Self-storage operators often charge fees that aren’t listed in the rental agreement. While your statute may permit them, contractually, you need to list them. If you don’t write out the actual charges, at least provide notice of the charges the occupant stands to incur during the term of the rental agreement.
For example, in New York, statutory requirements say you must itemize all the mandatory and optional charges in the rental agreement. In other states, you should still itemize these charges. A court could rule that you illegally sold the unit belongings because the default was cured except for certain charges you weren’t permitted to add because they weren’t itemized in your lease. If you charge any extra fees, put them in writing.
Default
Make sure you have a solid clause that lists all the events of a default. Obviously, the No. 1 issue is non-payment of rent, but there are other grounds under which you could terminate a rental agreement. Some examples include working on vehicles in a unit, manufacturing a product, living in the space or keeping animals in the unit. While these are easily events of default, you should have a clause that allows the judge to see it. For example, you can say the tenant violated clause “x,” and pursuant to clause “y,” it’s considered a default; therefore, you have the right to terminate the rental agreement.
Think also in terms of “privilege” clauses, such as the right to use the dumpster, water, 24-hour gate access, etc. How do you terminate these rights if they’re abused? You do so with a good default clause.
Loss and Damage
Make sure your release clause discharges you separately from loss or damage to stored property as well as tenant injury or death, or the injury or death of anyone the tenant brings on the property. This clause should be as encompassing as possible to cover loss or damage to property from any source or cause. In some states, you may not be able to disclaim liability for your negligence. This is a discussion to have with your attorney.
Dispute Resolution
Your lease should also include some type of alternative dispute-resolution clause, such as mediation or arbitration. A mediation clause gives you the opportunity to hear the tenant’s side of the story and for him to hear your side with a neutral third party before litigation begins. Failure to at least mediate claims before litigation results in unnecessary expense in the form of discovery, pleadings and attorney fees.
Vehicle Storage
Are you storing vehicles? Laws addressing vehicles in default have been recently updated in about 20 states. You need to know these laws and revise your rental agreement to be prepared for the new default procedures.
Even before any statute updates, there was a lot of information you needed to gather from tenants about a stored vehicle, including title, registration, lien holder and insurance—all of which you still need. The problem is if you don’t ask the tenant if he plans to store a vehicle in his unit, you won’t know about it. If you don’t have all of this information, your default remedy is going to take much longer to enforce.
As you can see, your rental agreement must be comprehensive and detailed to ensure your storage business is well-protected. If you haven’t updated your lease lately, it’s time to do so. Failing to include the above provisions could leave your business vulnerable.
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 J. Greenberger is a partner with the law firm Katz, Greenberger, & Norton LLP in Cincinnati and is licensed to practice in the states of Ohio and Kentucky. Mr. Greenberger’s practice focuses primarily on representing the owners and operators of commercial real estate, including self-storage owners and operators. His website, www.selfstoragelegal.com, contains legal opinions and insights as well as an article archive. You can send your questions, comments or suggestions for future topics to [email protected].
