After a short life in a New York City church, the Adams Organ came to rest in a storage building in Germantown, N.Y. The building owner agreed to rent street-level space to store the organ for $1,800 per year. No rental agreement was ever executed, but the arrangement was memorialized in a letter describing the terms of the rental. A key to the premises was also given to the plaintiff. Sometime during the first year of storage, the organ was moved by the building owner to a storage area below street grade and may have suffered water damage. Herrington brought suit against the building owner, alleging the organ was stored pursuant to a bailment agreement. The suit demanded the return of the organ in its original condition or money damages equal to its value.
Judge McMahon rejected the claim that a bailment was ever created. When the organ was originally delivered to the storage warehouse, the relationship was a rental of storage space and not a bailment. The court noted the letter stating the terms of storage described a lease of space rather than a bailment relationship. The plaintiff clearly shared control over the rented space with the building owner. There was no evidence that the building owner undertook any duty to monitor or care for the organ.
The judge then observed that a rental of premises could not be transformed into a bailment by later actions of the landlord, writing, "Tenancies and bailments are two separate and distinct legal relationships, and a contract cannot create both a tenancy and a bailment at the same time." Judge McMahon concluded the building owner may have breached the lease agreement, but he was not a bailee.
This finding is very important as the judge ruled landlords couldn't be changed into bailees by mere conduct. A landlord can breach a lease or be guilty of conversion of tenant property, but he does not become a bailee by such actions, even if those actions are wrongful.
Judge McMahon's ruling is just a U.S. District Court order interpreting New York property law, but her opinion gives important insights into the legal distinctions between the rental of a premises and the creation of a bailment. The legal relationship between storage operators and their customers is a recurring question. It is clear they are landlords when they rent a storage unit. Does this change when they exercise their lien rights? Do they become bailees when they deny delinquent tenants access to their storage space pursuant to state lien laws? What if property is stolen from a space that is overlocked?
Judge McMahon's ruling suggests the relationship is still landlord and tenant, and no bailment arises. If the storage operator acts in accordance with the state lien law, there is no conversion of goods and no breach of the rental agreement. And there is no greater duty of care for the goods while the storage operator has control over the storage space because of the tenant's breach of his obligation to pay rent. Judge McMahon's opinion could influence courts around the country. Self-storage operators involved in litigation with their customers should alert their attorneys to this opinion if the plaintiff's lawyer has made allegations that the self-storage operator is a bailee.
This article is based on another that appeared in the September/October 2001 issue of the Self Storage Legal Review.
D. Carlos Kaslow is an attorney in Berkeley, Calif., and is the founding partner of the Self Storage Legal Network and author of the Self Storage Legal Review, a bi-monthly newsletter covering self-storage legal issues. He is also general counsel for the national Self Storage Association. For more information, visit www.selfstorage.org.