There are numerous risks a self-storage operator assumes in running a facility, including damage to the facility itself, injury to a tenant or employee, or a tenants property could be damaged, stolen or even improperly sold. To protect themselves from these risks, facility operators can choose from a variety of insurance coverages.

Coverages include those that protect the value of physical buildings and other property improvements, liability and workers compensation insurance to address the risk of injuries, and customers goods legal liability to respond to claims by tenants when property is damaged by the negligence of the operator. Theres also sale and disposal insurance, which can protect an operator from claims by tenants alleging their property was wrongfully foreclosed. Essentially, theres insurance for most every kind of risk that could occur within the context of self-storage.

The cost of the insurance depends on the size of the facility, history of its claims, maintenance of the facility, and level of deduction requested. For the most part, having sufficient insurance is a necessary part of any business. However, there are numerous things a self-storage operator can do to reduce his overall risk.

Maintenance and Records

To avoid potential claims of personal injury or property damage, a facility operator must do everything he can to regularly maintain his property. He might focus on maintaining roll-up doors to avoid injuries during operation, or create safety procedures to ensure driveways and walkways are properly salted in winter to avoid potential slips and falls. He should regularly check his roofs and gutters to avoid leaks and backups, and perform inspections to verify fire-safety systems are properly functioning.

Having a positive approach to maintenance the prevention of injuries and property damage will not only reduce the likelihood of such occurrences, but will impact the cost of liability insurance. Its important facility operators keep written records of all maintenance work they perform. If necessary, these can be used to demonstrate in court that the operator acted in good faith in attempting to maintain his property. If a facility has a log chronicling regular inspections and repairs, this should be sufficient. Its equally important to keep records of repairs by others, especially manufacturer repairs. These may become relevant if an injury arises from equipment or systems with product defects.

Operators should put facility safety procedures in writing and maintain a log of when these are accomplished. This will constitute significant evidence of the care taken to avoid injuries and damages at the facility.

A Solid Lease Agreement

Self-storage operators should focus on the terms of their lease agreements with tenants. Based on the laws of many states, it may be possible and appropriate for an operator to limit his liability exposure to tenants based on the terms and conditions of the facilitys lease. These exculpatory provisions can address not only the risk of loss or damage to a tenants stored property, but the tenants risk of personal injury on the premises.

In some states, courts will simply disregard these provisions completely as being against public policy (meaning the courts find the effort of a business owner to have customers release any of their rights as unfair), while other courts have found that as long as the release provisions are clear in writing and noticeable by the customerlarge type and boldsuch provisions would be appropriate. Language addressing a tenants waiver of loss or damage to his stored property might read something like this:

The Owner is not a warehouseman engaged in the business of storing goods for hire, and no bailment is created by this Agreement.   The Owner exercises neither care, custody, nor control over the Occupant's stored property.  All property stored within the Space or on the Property by the Occupant or located at the facility by anyone shall be stored at the Occupant's sole risk and the Occupant must take whatever steps he deems necessary to safeguard such property.  The Owner and the Owner's employees and agents shall not be responsible or liable for any loss of or damage to any personal property stored in the Space or on the Property resulting from or arising out of the Occupants use of the Space or the Property from any cause whatsoever, including but not limited to, theft, mysterious disappearance, mold, mildew, vandalism, fire, smoke, water, flood, hurricanes, rain, tornadoes, explosions, rodents, insects, Acts of God, or the active or passive acts or omissions or negligence of the Owner, the Owners agents or employees.

Provide Tenant Insurance

Facility operators can contractually seek to shift the risk of insurance to their tenants. As a general rule, self-storage facilities are not accountable for the care, custody or control of the property stored by tenants. If an operator requires tenants to obtain insurance, then the chance of a tenant filing a claim against the operator is decreased because the tenant is more likely to file a claim with his own insurance company.

In other words, by imposing an insurance obligation on tenants for the value of stored goods, if there is a loss or damage to the stored property, the tenant will be required to first recover compensation from his own carrier before seeking payment from the facility operator. Its generally recommended a provision be added in rental agreement to require tenants have insurance coverage for the replacement cost of 100 percent of the value of the property being stored. An example of such language is:

The Owner does not provide any type of insurance which would protect the Occupants personal property from loss by fire, theft, or any other type of casualty loss. It is the Occupants responsibility to obtain such insurance. The Occupant, at the Occupant's expense, shall secure his own insurance to protect himself and his property against all perils of whatever nature for 100% replacement of the stored property. Insurance on the Occupant's property is a material condition of this Agreement. Occupant shall make no claim whatsoever against the Owners insurance in the event of any loss.  

Because theres the freedom to contract in leases, rental agreements with required insurance provisions are generally considered enforceable. A waiver of subrogation provision should also be included in the lease to limit the right of the insurance carrier to recover money against the self-storage operator for a covered loss. That provision might read:

The Occupant and its insurer agrees not to subrogate against the Owner in the event of loss or damage of any kind or from any cause.

Know Your States Lien Laws

Operators who plan to enforce their lien and selling rights must know their states self-storage lien laws. By following all the procedures and timelines in the law, they can protect themselves from liability. However, if a foreclosure sale is found to be invalid, an operator can be held liable for damages, which might include punitive damages if its found the operator ignored statutory guidelines.

Operators should first verify they have the most recent version of the lien law, as many states have recently updated their lien statutes. Once theyve reviewed their states lien law, they should seek legal advice for any questions or ambiguities they encounter.

Its clear the most significant financial liability a self-storage operator can face can arise from a wrongful sale claim from a tenant. Therefore, its essential operators obtain sufficient coverage for the risk of a sale through the purchase of sale and disposal coverage. This insurance will protect a self-storage operator not only from the value of a possible judgment, but the legal defense costs involved. Even if a foreclosure sale is handled in full compliance with the law, the coverage can protect an operator whos forced to defend a tenants frivolous action.

Scott Zucker is a partner in the law firm of Weissmann Zucker Euster, P.C., in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Zucker is a frequent lecturer at national conventions and the author of Legal Topics in Self Storage: A Sourcebook for Owners and Managers. To reach him, call 404.364.4626; e-mail [email protected].

On Dec. 17, President Obama signed an $859 billion tax cut and stimulus package that should strengthen commercial real estate and spur economic recovery. The legislation includes two tax extensions that will significantly influence the commercial real estate sector: the continuation of the 15 percent tax rate on capital gains through 2012, and the extension of the 15-year timeline for depreciating leasehold improvements through December 2011, retroactive to Jan. 1, 2010.

As a member organization of The Real Estate Roundtable (RER), a non-profit public-policy organization that represents the interests of real estate, the national Self Storage Association backed the tax provisions, which should enable investors to move forward with greater confidence. Based in Washington, D.C., RER focuses on policy areas governing tax, capital and credit, environment and energy, and homeland security.

According to the SSA, extending the 15 percent capital gains tax rate should encourage a range of desirable economic activities: the acquisition and development of commercial properties; lending to finance or refinance investment in those properties; and the employment of skilled workers involved in construction, renovation and remodeling.

Specifically, the new legislation will:

• Extend the current tax law on income, capital gains and dividends until 2012
• Reinstate and extend a number of business tax breaks through 2011, including real estate-backed provisions to provide for 15-year depreciation of leasehold improvements and same-year expensing of brownfields cleanup costs
• Provide immediate expensing of 100 percent of the costs of business assets whose depreciable life is less than 20 years (eligible assets include leasehold improvements)
• Allow 50 percent of the costs of similar investments made in 2012 to be expensed, with the balance of costs recovered via depreciation
• Reduce Social Security payroll taxes by 2 percent for workers in 2011
• Protect millions of Americans from getting hit by the alternative minimum tax
• Extend unemployment benefits for one year

Since jobs are essential to driving business demand for commercial space, RER welcomes the tax package and is hopeful it will help spark job creation in the private sector.

This breakthrough on taxes couldnt be more welcome, said RER President and CEO Jeff DeBoer to GlobeSt.com. By offering some predictability on tax policyalbeit temporarythis new law will allow businesses to better calculate their future costs, giving many of them more confidence to proceed with hiring and expansion plans.

Westy Self-Storage Center in Chatham, N.J., will serve as a drop-off for used-book donations on behalf of the Summit College Clubs annual book sale. Used books will be collected Jan. 5 through March 31 at a secure area in the main lobby. Tax receipts will be provided at the main desk.

Organizers will also accept DVDs and audio cassettes. Text books, digests, encyclopedias and magazines will not be accepted.

The Summit College Club is a branch of the American Association of University Women. The organization has held a book sale annually since 1934 to raise scholarship money for local female students. The 2011 event will run April 13-17.

Founded in 1990, Westy Self Storage is headquartered in Stamford, Conn. The companys portfolio of facilities span the tri-state area with eight centers in New York, six in Connecticut and three in New Jersey.

Talonvest Capital Inc., which provides commercial real estate owners with access to debt and equity markets, has launched a non-recourse loan program for self-storage owners nationwide. Loan terms include:

• $3 million minimum loan amount
• 70 percent maximum loan-to-value
• 10 percent minimum debt yield
• 1.25 minimum debt service coverage ratio
• Five- to 10-year fixed rates
• 30-year amortization

Based in Costa Mesa, Calif., Talonvest provides third-party capital placement, debt and equity for commercial real estate nationwide. It engages in principal investment activities in the $10 million and under range including making loans, buying notes and buying assets. The company is operated by principals Eric Snyder and Thomas Sherlock.

Snyders previous positions include senior vice president at Buchanan Street Partners, president at Buchanan Storage Capital and director at GE Capital. Sherlock formerly worked as a senor managing director at Buchanan Street Partners.

Christmas gifts and personal property were stolen last week from 29 self-storage units at RC Mini Storage in DeWitt, Ark. The theft was discovered on Christmas Eve when customers tried to retrieve gifts from their storage units.

Police said they are unsure how much had been stolen from the facility and were in the process of compiling a list of missing property from the affected tenants. Investigators also do not know whether one person or a group of people are responsible for the thefts and if the break-ins took place over several days.

In appreciation of new and existing customers, The Lock Up, a Chicago-based self-storage company with 32 facilities nationwide, wrapped up the year by giving away a new Apple iPod Touch at each of its locations.

The Lock Up launched the sweepstakes in November, offering visitors to the companys Facebook page the opportunity to enter to win an iPod Touch. Winners were chosen Dec. 15.

Facebook has been a popular marketing avenue for the company, enabling The Lock Up to post storage deals and campaigns, as well as garner any comments or suggestions customers may have, said Andrea Carnes, vice president of operations.

"We realize consumers have many choices with regards to self-storage options, so we really strive to go above and beyond their expectations in terms of customer care," she added.

As part of its ongoing commitment to demonstrating customer appreciation, The Lock Up has a full slate of discount specials, events and additional Facebook sweepstakes planned for the new year. Our goal for 2011 is to not only offer the best service and most creative and competitive promotions, but to continue our public outreach via social-media outlets as well. We really look forward to building a greater rapport with people nationwide so we can listen to their suggestions and tailor our services to their needs, Carnes said.

Early-bird discount registration rates for the Inside Self-Storage World Expo in Las Vegas will expire Jan. 14. The event at the Paris Hotel and Resort, March 14-16, will feature 36 seminars, four workshops, two days of exhibits, and multiple peer-to-peer networking events. By registering before the early-bird deadline, attendees will save:

• $150 on the standard Education Package
• $300 on the Premium Package, which includes the Education Package plus a choice of two workshops
• Up to 35 percent on individual add-on workshops

The standard Education Package includes access to all seminars, the exhibit hall, and five networking events including the popular Self-Storage Q&A, Technology Marketplace and Buyers & Sellers Meeting. Self-storage owners, managers, developers and investors will have access to four comprehensive education tracks covering the industrys hottest topics including online marketing, collections and lien sales, manager incentives, facility design, and much more. The expos four add-on workshops delve deeper into the critical areas of marketing, legal issues, development and site operation. The exhibit hall will feature more than 100 of the self-storage industrys top suppliers representing a highly diverse range of products and services.

Attendees can also take advantage of discount room rates through Feb. 15 by calling 1.800.HARRAHS and mentioning the expo.

Details about the industrys largest conference and tradeshow can be found at www.insideselfstorageworldexpo.com. Registration can be completed online or by calling 800.230.2311.

Virtus Real Estate, an Austin, Texas-based private equity firm, purchased 20 self-storage properties throughout the Southeast in 2010. The companys purchases represent more than 1,000,000 square feet of rentable space with an acquisition and renovation cost of nearly $50 million. They are part of Virtus efforts to leverage key demographic trends in the national economy.

In times of fiscal decline, the self-storage market has demonstrated resilience, while also posting solid gains throughout economic resurgence, said Terrell Gates, CEO and founder.

Virtus developed its investing strategy through emphasizing the role of specific demographic trends and seeking investments outside of traditional asset classes. According to the firm, it bases its strategy on trends including the aging and growth of the Baby Boomer Generation; the coming of age of the Millennial Generation; the growth of the U.S. Hispanic market; and the transitory nature and decreased job tenure of the American worker.

The most recent self-storage investment fund purchases have focused on acquiring, adding value and disposing of primarily second- and third-generation cash-flowing assets in major metropolitan areas such as Knoxville, Memphis and Nashville, Tenn.; Baton Rouge and Shreveport, La.; Montgomery, Ala.; Hattiesburg, Miss.; and Atlanta. After each investment is made, Virtus enhances value by improving management and marketing, repairing and upgrading facilities, and optimizing rental rates in each self-storage property.

In 2011, Virtus to acquire approximately $150,000,000 in self-storage properties while simultaneously launching a new student-housing fund. Since 2003, the company has purchased 125 properties with an acquisition price of nearly $1.6 billion.