By Fred S. Steingold

So, you're ready to put your self-storage business online. The move from brick and mortar to "click" and mortar can be exciting--but also a bit daunting. Fortunately, there is plenty of literature and software out there to get you up to speed on the business and technology issues, as well as consultants to aid you. But information about legal issues can be more difficult to come by, so we'll focus on those here. The following suggestions can help reduce your legal risks as an e-commerce company.

Consider setting up a corporation or limited-liability company.

If your business is already organized that way, great. But if it's set up as a sole proprietorship or partnership, consider a change. The reason: It's impossible to predict your business' legal exposure when operating on the web. The Internet is relatively new, and courts and legislatures are just beginning to look at e-commerce conflicts.

Since the web is everywhere, if you are involved in litigation relating to its use, you may find yourself hauled into court halfway across the country. If your business is a sole proprietorship or partnership, you, as an owner, can be personally liable for a judgment against it. Your personal assets will be at risk. Why take a chance? It's simple to limit your personal liability by shifting to a corporation or limited-liability company (LLC).

Make sure you own your domain name and that it's legally secure.

Registering a domain name, such as www.ProtoBiz.com, is the easy part. If someone hasn't already registered it, you can pay a modest fee to an accredited registrar, and the name is yours. But if you've used a consultant to help you get online, you need to make sure your business--not the consultant--is named as owner. If you and the consultant should part ways, you want to be able to control the domain name in the future.

Also be aware that just registering the domain name doesn't mean you can keep it. If the name resembles some other company's trademark, you may wind up in a lawsuit. If you lose, you'll have to give up the name, and may have to pay hefty damages to the rightful owner. The best protection is to have a lawyer do a trademark search for you. You'll learn if your preferred domain name infringes on someone else's trademark. A trademark search isn't 100 percent foolproof, but it comes pretty darn close.

Be certain you own your website content.

If you hire a website developer, have a written agreement that makes your business the owner of the words and images that make up the site. Otherwise, the developer may continue to own some rights, and will be able to use your material on other sites. Similarly, if you or the developer use material, such as an article or photo, from third parties, get permission in writing to use that material. This permission is sometimes called a license.

Be alert to linking issues.

As you know, linking to other sites is what makes the web fun and interesting. In fact, linking is what the web is all about. You may want to put a link on your own site, allowing visitors to get quick access to another site--maybe one with good information about your industry.

Usually, linking is free of legal problems. But watch out for deep linking--taking visitors to someone else's site but bypassing the other site's home page. The other site may be getting advertising revenue based on the number of visitors to the home page. If your visitors don't have to stop there, this ad revenue is lost, and you could be sued.

Keep up with privacy agreements.

The Federal Trade Commission (FTC) is concerned with how you use information you collect from customers online--especially children. We don't have the final word yet on what will be premissible, but you should develop a privacy policy and post it prominently on your site. If, for example, you're going to sell personal information to outsiders, customers should know that. For more information on this developing issue, check the FTC's website at www.ftc.gov.

Be truthful in online advertising.

Claims and promises you make online are subject to the FTC's advertising rules. Tell the whole truth online and don't mislead customers. Don't hide important information in inaccessible places. Otherwise, you'll incur the FTC's ire, and have to pay fines, too.

If you'll be shipping goods to online customers, get familiar with the FTC's Mail Order Rule. It applies to online sales as well. It requires you to update customers on when goods will be shipped and gives them the chance to cancel their order if they don't like the delay.

Clearly state warranty and other contract terms.

When you sell goods, provide services or present information online, you may want to limit your liability. Off-line, you might do this with a written contract or a sign posted in your business place. Online, you need to find another way. Consider the following issues: Just what does your warranty cover? When can a customer get a refund? Are you soliciting customers in certain states only? Do customers have to be older than a specified age? Whatever your answers to these and similar questions, post your terms clearly on your site.

You might require customers to acknowledge, by clicking, that they accept your terms. These "click-wrap" agreements probably are legally binding on the customer. We'll know for sure in a few years when judges have had a chance to rule on such agreements.

The age of e-commerce is upon us, and will continue to rise to more sophisticated levels. Following these simple guidelines will help ensure the success of your online business--and keep you out of legal hot water.

Fred S. Steingold practices law in Ann Arbor, Mich. He is the author of The Legal Guide for Starting and Running a Small Business and The Employer's Legal Handbook, published by Nolo.com.

By Michael Richards

Have you seriously considered this scenario? It's Sunday morning and the phone rings. It's your manager. "Hey, boss, the office was broken into and the computer is gone. What do I do?" Do you know what to do? Do you have a contingency plan? A written one? Have you tested it? Practiced it? Be honest: If you are like most small businesses, you haven't.

The key to surviving any disaster is planning, and planning for your computer to break or disappear is essential. Your computer is a key tool in all of your day-to-day functions--especially customer service. Without it, how will you give receipts, provide statements or answer inquiries? Often, the computer controls the security system, which in turn determines who is allowed through your gate. And without your accounting data, how will you know who has paid and who is delinquent?

Recovering from a computer loss is not difficult if you have planned for it properly. Obviously, you must be able to replace or repair the lost computer, and you absolutely must have good backups of your data.

Replacing or Repairing Your Computer

Your replacement or repair strategy must be well-planned in advance. Is your computer under a warranty service? Is the service on-site or carry-in? What is the turnaround time? While you can always buy a computer to replace your broken one, this could be expensive and unnecessary if a repair will do. Therefore, you should consider plans for a backup computer. This could be your home computer, a rental or a loaner from your computer technician. If you will rent or borrow a computer, make sure you have made arrangements in advance, and that your staff is aware of your backup plan for repair and temporary replacement.

Ensuring You Have Good Data Backups

You must have backups of your data in order to recover from a loss. You also need backups to recover from potential errors. These may include human errors (for example, you accidentally add an extra late charge to every account), machine errors (the data is corrupted or erased), or errors caused by viruses or software bugs. Most software programs for self-storage come with built-in backup utilities that make it easy to back up your data. Disk drives such as the Iomega Zip come with their own backup utilities. Use the one that comes with your software if at all possible. Check these procedures and be sure all key personnel understand them thoroughly.

A good backup is not enough. You must rotate your backup tapes or disks. I strongly suggest using five backup sets: daily, weekly, monthly, quarterly and annual. Permanently mark each tape or disk with its place in the rotation (i.e., days of the week, months, etc.). Leave a space on the label where the actual date of the backup can be written in pencil, then erased and replaced the next time it is used. See the chart below for a suggested backup rotation.

The next important thing to remember is you must store the backups off-site. Storing the backups next to the computer is useless, and yet people make this error all the time. If you cannot store the backups off-site, then at least store them in a different building. If you cannot do that, then purchase a fire-proof safe (rated for computer backups) and store them there. If you are the owner, I recommend you store all the backup sets except the daily set (see chart) at your home, in a safety deposit box or other secure location.

You must also test your backups. At least once a month, test your backups by restoring them to another computer. This is usually done by a) installing your software onto the test computer and b) restoring the data from the backup disks to the test computer. Look in the help file of your software or contact your software vendor for specific instructions on how to test your backups. Make sure you know how to restore your data and have written step-by-step instructions for your staff to follow.

Backup-Rotation Schedule

All backup sets consist of multiple tapes that are "rotated" in the following schedule. (Note: "Tapes" can be backup tapes, Zip disks, CD-RW disks or any other backup media.)

A New Alternative

A new and exciting alternative to tape or disk backup is to backup your data over the Internet. Typically, your data is sent to a secure computer located in a data center. Multiple copies of your data can be stored, so you have the ability to restore from a previous backup anytime by retrieving your data from the data server. There are a number of advantages to doing backups this way: The process can be automated (for example, to run at midnight every night); you don't have to worry about the tapes being lost or stolen; you don't have to move the tapes off-site; and you don't have to worry about whether your staff is doing the backups each day. Really the only downside is that if you have a large amount of data, this option may not be viable until you have a high-speed Internet connection.

Set	# of Tapes in Set	A Backup is Done	Description	Replace Every
Daily	7	At the end of every day the business is open.	One for each day of the week you are open. Rotate so each tape is used once per week.	1 Year
Weekly	5	At the end of the day every Friday (or other selected day)	One for the each Friday (or other selected day) in the month. (There will be four or five each month.)	2 Years
Monthly	2	At the end of the day on the last day of the month, except the last day of a quarter.	One for the first end-of-month in the quarter, one for the second end-of-month in the quarter.	3 Years
Quarterly	3	At the end of the day on the last day of the quarter, except the last day of the year.	One for each of the first three end-of-quarters of the year. For a calendar-year business, this would be March 31, June 30 and Sept. 30.	4 Years
Annual	1 per year	At the end of the day on Dec. 31 or the last day of the fiscal year.	These tapes are archived permanently and never reused. You can use one of the tapes that you are about to remove from rotation. Most tapes have a write-protect tab on them that should be set.	Never

Who Is Responsible?

The ultimate responsibility for proper backups rests with the self-storage owner. While it is perfectly OK to delegate the job of creating the backups to other staff, I strongly recommend that the owner personally verify the backups are being made and tested on a regular basis. If at all possible, the owner should do the testing himself.

Without a proper backup plan, you may find yourself facing the worst-case scenario: a disaster. You would not be able to tell who your customers are, who has paid, who owes what amount, who should be allowed into their units and, for that matter, who should be allowed to come through the gate. You most likely will find your system doesn't accept customers' codes and your accounting records are lost. In contrast, with a proper backup, your worst-case scenario is a few hours of downtime. Unfortunately, too many people learn this lesson the hard way. Don't wait until it's too late. Create your computer-disaster recovery plan today.

Michael Richards is the president of HI-Tech Smart Systems, maker of RentPlus^® and Mini-StoragePlus^® software for self-storage. Mr. Richards has been involved in the self-storage industry for more than 20 years, and has been a frequent speaker at industry events and a contributor to industry publications. He can be reached via e-mail at [email protected]; phone 800.551.8324. HI-Tech plans to begin offering an Internet-backup service starting April 1. For more information, visit www.hitechsoftware.com.

By David Fleming

I was sitting here making my collections calls, when I realized this is exactly what we touched on in my February column: late fees--the dreaded task of collecting delinquent payments. Some of us are good at it, some of us aren't. Most, if not all, managers hate collections. (If there are any out there who actually enjoy this process, please contact me immediately so we can have your head examined!)

Although this is a very unpleasant aspect of our job, it is also very necessary. I mean, what kind of place would this world be if everybody just paid their bills on time? In this month's column, I would like to impart some helpful collections techniques I use, and maybe you can contact me regarding things that work for you. But before I begin, I would like to classify our "deadbeats," as we so affectionately refer to them.

I find as I make my collections calls there are quite a few types of late-paying renters out there. The first type I run into are the "forgetters." These are the people who simply need a reminder to pay each month. Then there are the "excusers"; although forgetting may have been their first excuse, it certainly wasn't their last. You know the type--every month it's a different reason, and if you've noticed, each month the story gets longer and more dramatic. Then there are the "leisurely late payers." These are the ones who don't make excuses for being late--they just "haven't gotten a chance to get over there." And, of course, we run into those who seem to be on our list every month. These are the "chronics." They could be chronic forgetters, chronic excusers or chronically leisure. At any rate, they are chronic, and these are some of the toughest. It seems after a while they just stop trying to make an excuse for their behavior.

One more ingredient we can throw into the mix is the "haves vs. the have-nots." Let's face it, some people just can't pay the bill for whatever reason. Some live paycheck to paycheck, but some obviously have the money--like the guy in the new Mercedes SUV (or maybe that's the reason he can't pay the bill!). As you can probably see by now, when you start mixing these "types," the picture can get quite complicated.

Now, I know a lot of managers out there try to work with these customers. And I think this is a good thing. But you can't let working with the customer get in the way of doing your job. If your delinquency rate is above 5 percent, it's time to put some good, solid policies and procedures into your collections efforts. Good old "Joe" may have gotten divorced, have a medical condition, have his car break down, have his dog die, have the check in the mail--whatever--but he still needs to pay his bill. He can pay it late, he can even make partial payments if he wants, but he had better do something because the clock is ticking.

Handling 'Delinquents'

Every state has a law defining when you can consider your customers "late" in their payments. In some states, it's five days, in some it's 10. In other places, it may be as long as a month. Whatever that grace period is, you need to know it, because on the last day is when your collection efforts should start. Keep in mind that a 10-day grace period means your customer is late on the 11th--assuming you work on a first-of-the-month basis. This happens to be my particular schedule, so this is the example I'll use.

Rent is due on the on the first of the month. After the 10-day grace period (on the 11th), our computer is set up to automatically print out a customer invoice with our "administrative fee" added to the account. Our system also automatically flags the customer, barring him gate access, and recommends we overlock his unit. I might mention this overlock is in addition to his own padlock. I certainly don't recommend anyone cut a customer's lock after only 10 days. And I realize there are different laws in each state regarding some of the actions you can take and the time periods needed before you can take them. I highly recommend you familiarize yourself with these. If it were up to me, I would set my policies and procedures according to the minimums.

I know a lot of you out there are saying this is too much, that taking such drastic actions after just a few days of delinquency is going to upset your customers. Realistically, it may upset a few; but I find this procedure sends a clear message that lateness will not be tolerated. If you allow people to access their belongings while being delinquent, you are removing your front line of defense against delinquencies. If they need to access their belongings, then what better incentive to pay the rent? And these procedures can be easily explained by (or blamed on) the computer. (By the way--those of you not yet computerized need to get with the program!)

Now on to the collection call. The first call takes place on the 11th. Remember all of those horrible things the computer wants you to do? We just give the tenant a "courtesy call" reminding him of the rent due for this month. The only reason we're calling is because the computer has locked him out of the facility. We just didn't want him to show up after office hours and not be able to get in. And if he'd be willing to come in today to pay the rent, we'd be willing to go ahead and waive the late fee this one time as a courtesy. If he wants to give us a credit card over the phone, that will be fine. We can even set it up so we just bill the card each month (if you're not set up to accept credit cards, then again, get with the program!)--then he won't have to worry about "forgetting" again.

Do you see what's happening here? Not only are we now looking out for the tenant's best interest and playing ally against the computer (that machine has no compassion for his circumstances!), but we have offered to save him money. Hopefully, we've also gotten him to agree to auto-debit. If not, then we tried to at least get him to take advantage of our no-late-fee guarantee (see my February column for more information on that). Remember that a good manager is always selling--if not our product, then our service. With any luck, this is the last time we'll ever have to call this customer for this reason. But what if it isn't?

No More Mr. Nice Guy

All right. The nice-guy approach doesn't work for everyone. I find it usually cuts my delinquencies to less than half of what they were. But now you've already locked the late tenant out, charged him an administrative fee, sent him a letter and called him. Not bad. Now, when your boss asks, you've done all you should. A few more days go by, and you send a second letter (ours goes out on the 20th). Some people charge a letter fee or another administrative fee. We just send the letter, and make the second phone call. As the end of the month nears, the tenant gets yet another phone call.

Yes, I know this sounds unpleasant, and I know there are other things that need to be done. But if you had gotten the tenant on auto-debit, or at least the no-late-fee guarantee, you wouldn't need to do it! After the tenant is 30 days late, he is in default of the rental agreement--at least in our state. Of course, that's another reason to call him.

At this point, we have either been trying to get a hold of him and just haven't been able to, or he hasn't kept his word. If it's the first of these two, it's time to call the alternate contact on the rental agreement (you did get one of those right?). But be careful not to divulge too much information to this person. Some states have laws regarding this, not to mention it's just bad etiquette. Just stress that it is very important the individual you are trying to reach gets in touch with you. This person is usually a parent or family member, but don't let this lull you into a false sense of security. I find they are often aware of the fact that your customer has a unit at your facility. Not telling them why you are calling not only protects you, but leaves them believing there is some type of emergency, which in turn prompts a return call from the tenant.

Of course, sometimes the tenant just hasn't kept his word. By now, he is probably tired of making excuses and may be trying to avoid you. Have you ever called a tenant only to be told he is not there, but you could almost swear that it's him talking to you? Just go ahead and leave the message to return your call. Give him a few minutes to relax, and call him back. This time, instead of saying, "Could I speak with so-and-so, please," which alerts him this is a professional call, use his first name like his friends or family would. You'd be surprised how many people are suddenly there, sounding just like the person with whom you just left a message.

We have now sent three letters and made three phones calls in just 30 days. We didn't like it, but it's done. When the boss asks, we can say we did it. Of course, it's important to document all of this, and most software will do that for you. Besides documenting the letters in the tenant's file, most software has some type of delinquency report or even a call sheet to make notes on. Save these. Not only is it important so you can look back at what the conversation or arrangement with the customer was, but you have something to show the boss. Most important, you have written and dated proof of your efforts to contact the customer before auctioning his belongings--because that's the next step. Of course, that's a whole other article. So until next time, remember: Perseverance pays off. Now I've got to go finish those phone calls.

David Fleming is a manager and manager trainer for Premier Self-Storage Inc. of Amherst, N.Y., which plans to build 20 state-of-the-art facilities over the next five years. After having managed facilities in three states over the past 10 years, Mr. Fleming now resides in a Buffalo suburb with his two children and his co-manager and wife, Tina, who will also contribute to this column. David has won awards from industry publications, including the Inside Self-Storage award for Manager of the Year. To contact the Flemings, call 716.688.8000; fax 716.688.6459; e-mail [email protected].

Faded, dull doors and metal buildings are a universal problem in the self-storage industry. But they can be refinished to look like new and guarded from the elements with a protective coating offered by Reno, Nev.-based Everbrite Inc. Preventative maintenance pays--owners should seek to protect their self-storage investment. It isn't just a question of aesthetics, it's a matter of maintaining a professional image.

Everbrite coating is an easy-to-apply, one-part, self-leveling, clear coating that refinishes faded and dull surfaces to look new again, bringing out the original color and finish. It also protects surfaces from sun oxidation, fading, salt-air oxidation, acid rain, moisture and other damaging elements.

How It Works

Everbrite can be used to refinish original baked-on paint or repainted surfaces, making faded, chalky doors, metal buildings and signs look like new again. While some repainted surfaces don't show as dramatic a difference as original paint, once they are sealed and protected, they look much nicer and are virtually maintenance-free. Paint that is not baked on will oxidize much faster, and can crack, peel, blister, chip and ruin doors, especially when in multiple layers. Repainted doors generally need to be painted every four to five years.

Dust may settle on Everbrite-coated doors, but it will not penetrate the paint and will rinse off easily. Everbrite's smooth envelope protection prevents the adherence of dirt, fingerprints, diesel carbon, algae, bird droppings and other substances to self-storage doors. Coated doors can maintain their appearance for as long as eight to 15 years, depending on atmospheric conditions. When the gloss begins to dull, all that's needed is to rinse off the doors and reapply. The Everbrite process does not even interrupt day-to-day business operations--the coating dries very quickly, allowing tenants access to their units in just minutes.

How Much to Use

For approximately 1,200 square feet or 17 to 20 large roll-up doors

• 1 gallon Everbrite protective coating
• 1 quart concentrated deoxidizing cleaner
• One building-cleaning brush

For approximately 6,000 square feet or 90 to 100 large roll-up doors

• 5 gallons Everbrite protective coating
• 5 gallons concentrated deoxidizing cleaner
• One to two building-cleaning brushes

For approximately 12,000 square feet or 180 to 200 large roll-up doors

• 10 gallons Everbrite protective coating
• 5 gallons concentrated deoxidizing cleaner
• Two building-cleaning brushes

For approximately 24,000 square feet or 400 large roll-up doors

• 20 gallons Everbrite protective coating
• 5 gallons concentrated deoxidizing cleaner
• Three building-cleaning brushes

Everbite vs. Paint: A Cost Comparison

Before and After

Even though paint's cost per gallon is less than that of Everbrite, due to coverage, its cost per square foot is actually greater. The cost of labor for prepping surfaces for the application of Everbrite coating or paint are about the same--chalking must be removed for proper adhesion of either. However, the cost of labor is higher for painting because of the necessity for masking. Subsequent applications of paint can have a much higher cost because that paint will chip, crack and peel, creating the need for sanding and other additional prep work. The application of coating requires no masking--and causes no overspray problems or risk of damage to customers' goods. When all is said and done, paint costs 12 to 18 cents per square foot in materials, while Everbrite costs only 10 to 13 cents per square foot in materials--or about $8 per large roll-up door.

Check It Out

For a free copy of a demonstration video, which shows the various Everbrite applications, call 800.897.9629; e-mail [email protected]; visit www.renewandprotect.com or www.renewstorage.com. A starter kit is available for $40 plus $5.50 for shipping and handling. The kit includes the video, 8 ounces of deoxidizing concentrate and 1 pint of Everbrite (enough to refinish approximately 150 square feet or three to four large roll-up doors). Referrals and testimonials are available upon request.

Everbrite Inc. has recently entered into an agreeement with Minico Inc. of Phoenix to market its product to the self-storage industry. Everbrite protective coating can also be purchased through Minico at 800.562.7900.

THE EUROPEAN ENTREPRENEUR IS ATTRACTED TO THE SELF-STORAGE sector for one of two reasons: either for the "pension-fund"-style income stream the self-storage facility offers once the site is near full, or the potential sell-out value of the facility to an acquisitive investor.

It's mainly for the latter that European entrepreneurs and property tycoons have such an appetite for the self-storage sector. People believe there is a quick pound to be made. However, in Europe, there's nothing quick about finding, securing, setting up and filling a facility past the break-even point and into profit. Or is there?

What the European, independent, self-storage market is crying out for is a benchmark deal it can shake in front of the bank manager's nose. With availability of financing becoming more a barrier to entry than finding the right site, what the European entrepreneur needs is evidence and ammunition to convince his funding partners or bankers self-storage can offer a viable return on capital, a regular monthly income stream or, ideally, an exit via a sell-out with a huge return on the invested capital.

What sort of deal terms and structure would prove to the doubting bank manager your business plan was viable and a good risk to fund? Imagine this fairy tale: You acquire, at a very attractive price, an existing, loss-making, leasehold self-storage facility the current owner doesn't want. Next, you stabilize the business, realizing how much time and attention is going to be required to turn it around. Not wanting to get bogged down with day-to-day issues and neglect your current cash-cow business, you install a key man. I mean a key man, a $150,000-a-year package man.

With that sort of investment or overhead, there is no turning back. You have to expand to another site or fail. So within nine months, you sign a sublease on a super-modern, 35,000-square-foot warehouse with mezzanine capability and main-road frontage—thanks to providing some form of guarantee or security, of course. You get this site to break even in nine months due to bulk letting, drive-by frontage, a good fill rate, and a nice rent-free period as part of your sublease deal.

While your key man is doing the fill-up business, you've courted a property developer/investor who rates you and gets you a brand-new lease on a third leasehold site. You fill it and break even in groundbreaking time. So what have you got just two and a half years later?

• A saleable asset with three profitable sites.
• A £100,000-per-month gross income.
• A business that owes you £300,000.
• An opportunity to make an exit in a developing marketplace where your sites fit strategically into an acquisitive buyer's current operation.

So is this a fairy tale? So far, it seems too good to be true. Well it is, because it's only half the story. The rest is you spend the next 12 months haggling prices, negotiating warranties and trying to get existing landlords and tenants to agree to assignments, new leases, surrenders and various other issues, including the due diligence, replacement of bulk lets with self-storage income, value-added tax (VAT), tax planning, legal fees, time and sheer hard work. In the meantime, you're enjoying an increased revenue stream.

Twelve months later, you sell. You've done it! You've converted a small-scale, loss-making, single-site operation into a coveted, second-generation chain of facilities with strategic value. You're a hero. You've done the groundbreaking benchmark deal the independent operators and entrepreneurs in the U.K. industry need to convince bank managers self-storage is viable. That's fantastic, but there is someone who wasn't so pleased: the bank manager, because you won't be needing his money for a while!

Is this truth or absolute fantasy? It would be a great bit of investment credibility for the cash-starved, independent-operator market place—and great news for the big boys, with more sites opening. Acquisition opportunities are eventually created by this very type of market development.

Andrew Donaldson is the founder and chief executive of Active Supply & Design (CDM) Ltd. of Cheshire, England. He is also the founder of the Self Storage Sentinel newsletter, Rent-A-Space Limited (now a multi-site operator) and selfstorage.uk.net. For more information, e-mail [email protected]; visit www.askactive.com.

 

By David Wilhite

More businesses are damaged by floods each year than by any other type of natural disaster. Flood damage can happen to any business at any time--you don't have to be located near water to be at risk. Heavy rains or winter-water runoff can cause flood damage, even in areas not normally prone to flooding. But did you know losses due to flooding are excluded from coverage under most commercial-property policies?

Many business owners don't realize they are not covered against flood until it's too late. Fortunately, it's easy and inexpensive to protect yourself against flood through the the National Flood Insurance Program (NFIP), which is backed 100 percent by the federal government. Making plans to insure your self-storage facility against flood now will keep you liquid when the waters do rise.

The NFIP divides risk areas into three basic groups: low, medium and high. Somewhat surprisingly, less than one third of all reported flood claims come from high-risk areas; slightly more than one quarter come from low-risk areas. That's why many business-insurance experts strongly recommend you secure flood insurance, even if you are located in a low-risk area. Remember, your facility doesn't have to be located near a river or a lake to be at risk; heavy storms can cause just as much destruction as local waterways overrun by spring rains.

The good news about flood insurance is that anyone can get affordable coverage, even if his facility is located within the boundaries of a flood plain. The NFIP and its write-your-own servicing companies guarantee coverage for anyone living in a high-risk area, regardless of location. The typical commercial flood policy costs, on average, just a little more than a dollar a day, and a special low-cost preferred-risk policy is available for businesses in less hazardous areas. Keep in mind, however, that while you can purchase flood insurance at any time, in most cases, there is a 30-day waiting period from the date of your application before coverage goes into effect. You can't just call your agent when the rain begins to fall to put coverage in place.

The maximum amount of flood coverage currently available through the NFIP is $500,000. Depending on the area where you live, though, it may not be necessary to purchase flood insurance at maximum amounts. If you are outside a designated high-risk area, you can purchase partial coverage and receive an ACV (actual cash value) payout for damages up to the purchase amount. However, if you have a lot of equity in your buildings and property, you may want to consider purchasing excess flood protection, which can provide total coverage for up to $1. This extra protection may be very prudent given today's inflation and excessive construction costs.

Last but not least, don't wait until disaster strikes your business. Assuming you have (or are going to get) flood insurance for your self-storage facility, now is a good time to take preventive action to minimize your flooding risk exposures and reduce damage claims. Remember, in most cases there is a 30-day waiting period from the date of your application for flood insurance, so don't wait; one low annual premium can protect you and your facility.

In addition to loss-of-income and extra-expense coverages, Universal Insurance Facilities Ltd. offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information, or to get a quick, no- obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; phone 800.844.2101; fax 480.970.6240; e-mail [email protected]; www.vpico.com/universal.

Pre-Storm Considerations Establish an action plan for monitoring storm activity, preparing for flood conditions and implementing emergency salvage operations. Know the history of the area in which you operate to better anticipate flooding potential. Document the interior and exterior of your facility and valuables with a camcorder or polaroids to aid in the event of a claim. Flood-Watch Precautions Monitor weather reports through National Weather Service advisories. Ensure all doors, windows, etc., are tightly secured. Check conditions of flood doors, gates, walls, dikes, berms, etc. Test all sump pumps for proper operation. Shut off gas and electrical service immediately upon detecting flood conditions. Back up all vital computer files and records and store in a secure location. Relocate valuable possessions to safe elevations. Stay calm if disaster threatens. Be prepared to evacuate the area immediately. Post-Flood Activities Begin cleaning and drying salvage activities immediately, giving priority to your most valuable property and possessions. Remove flood debris and drain all standing water as soon as possible. Dehumidify damp areas as thoroughly as conditions allow. Return fire-protection systems to full operation as soon as possible. Carry valid identification, along with proof of residency and your business license. Drive carefully through debris-strewn areas and areas with standing water. Contact your insurance-claims representative immediately for adjusting and related services.

In 1950, Jerry Fouts and his brother, C.J., opened a gas station and tire-recapping business in Smyrna, Ga., a small Atlanta suburb. They called themselves Fouts Bros., and as the years passed, that enterprise gave rise to a variety of automotive-related ventures, including a parts store, Nissan franchise and truck-body building. Today, what started out as a small country gas station is a nationally known leader in the commercial-truck business.

In 1984, Nissan began importing a medium-duty, diesel truck called UD, and Fouts Bros. was one of the first dealers to take on the franchise. Since that time, the company has become one of the top three full-line commercial-truck dealers in the country--both in sales and parts. It was the first dealer to put a towing and recovery body on a UD truck, which today is a principal choice for the self-storage industry. In 1986, the brothers added the Isuzu and GMC lines to their offering, creating a broad spectrum of medium-duty trucks for customers to choose from.

The key element to the success of Fouts Bros. over the years has been its dedication to being a truck specialist. Today, commercial trucks are the company's only business, as it takes on the role of transportation manager for its customers. Its trained sales staff has the knowledge to determine the appropriate truck for each customer's needs--and then supply it. Fouts Bros. supplies trucks to customers of all vocations within the the United States and Bermuda, including vending, landscaping, rent-to-own franchises and self-storage, just to name a few. It attends tradeshows all over the country to learn the needs of the industries it sells to.

The service department at Fouts Bros. has 14 full-size bays and a staff of certified mechanics ready to repair customers' trucks and get them back to work as soon as possible. Its mechanics are certified to work on Isuzu, GMC, UD and Caterpillar Diesel engines, and Allison transmissions. It also offers a "Mobile Maintenance" truck that will travel to a customer's place of business after-hours or on weekends to perform oil changes, check-ups and other minor repairs.

The parts department at Fouts Bros. is one of the largest and highest-volume part distributors for commercial trucks in the United States. It has been the No. 1 UD parts department in the United States for the past 15 years, and is currently ranked in the top 10 for Isuzu truck-part sales. Fouts Bros. stocks a full warehouse of commercial-truck parts, and those it doesn't carry can be ordered and shipped overnight. It also has the ability to ship parts worldwide.

Fouts Bros. is proud of its top-dealer status, not only for UD trucks, but all its product lines. Today, the company sells and services several medium to large fleet accounts, as well as provides financing and leasing. It has been awarded the GMC 5-Star Award for national excellence, Ichiban (No. 1) status with Isuzu, and UD's national Dealer of the Year award for 1998. For self-storage operators in the market for a new or used commercial truck for their business, Fouts Bros. can provide the right truck for the right price.

Today, Fouts Bros. is managed by second-generation family members: Jerry's daughter, Sarah Wilder, and her husband, Bob. As they look to the future, they are grooming their son, Jason, to one day take over the business for the next generation. They hope to instill in him all they have learned from their forerunners: Give the customer the best service at the fairest price and be there when he needs you, and success will follow.

For more information or a price quote, call 800.948.5044; visit www.foutsbros.com.

By Harley Rolfe

When you shift from operating in a situation where you offer a commodity to a competitive marketplace, the number of elements in your business life increases from two to three. In a commodity marketplace, there is only you (your facility) and the prospects. All that's really required of you is that you make your product or service available. But when rivals show up, there is an important change. You now must now factor "distinction" into to your operating objectives. You need to give the prospect a reason to choose your facility over others in your area.

When you were alone (or nearly alone) in your market area, prospects appreciated that you were there and had space to accommodate their needs. But when the marketplace changes, the buyers change with it. Their attitude becomes something more like "You're lucky I'm even calling you!" The buyer has been empowered by the addition of rivals and will start to behave like a shopper. The operator who is there during the change must adjust. That adjustment is what marketing is all about.

Basic Instincts

In a competitive marketplace, every move you make is designed to entice prospects and make life difficult for the competition. You try for features that are attractive to prospects and hard to duplicate. But you face a challenge: Buyer instincts want to simplify the purchasing decision by placing all the choices side by side and choosing the cheapest--a situation you want to prevent.

Marketing is often invoked as the answer. What marketing usually means to those who haven't used it much is "media." What can I do to improve my Yellow Pages ad, or what about newsletters or a new brochure, or what about the exciting new Internet? What gets lost in the shuffle is the need for owners to make their offering unique. Media can help you publicize your business, but they won't solve the overall problem.

The first thing business consultants often ask their clients is, "What business are you really in?" What he is hoping the client understands, as he answers this question, is there needs to be a shift from what the client is now doing to what the client's customers want him to do. The client often rebels when he realizes where the consultant is headed, but the consultant knows what must be done. The problem is getting the client to embrace the change.

The changes a self-storage operator needs to make in the face of competition must be sufficiently radical to cause the prospect to see a real difference between him and his competitors. The operator wants prospects to abandon their usual manner of shopping--on price. It takes a jolt to get them to do that.

There is no point in talking about the Internet, Yellow Pages, newsletters--any kind of media--until you establish a market posture that will separate you from rivals in the eyes of the prospect. Unless you achieve that, all talk about media choices is meaningless and wasteful. Open your telephone book to the Yellow Pages and review all the self-storage ads. Ask yourself why a reader would choose one over another. Better yet, ask a friend to do it.

Do any of those ads have any power? You may start to examine the layout, type fonts, catchy copy, etc. But do any of them have a unique and persuasive message? They often attempt to manufacture notability where there is none. The prospect sees through that on his way to simplifying his shopping task. Such operators may well spend a bundle on media, get minimal results, and then blame "marketing" for being impotent. But he wasn't "marketing" effectively. Without a full-fledged marketing plan, utilizing media is a waste of time.

Developing a facility's attractive features is where a marketer's creative juices start flowing. The problem is how to establish differentiation. You can't necessarily control the supply of units in your market area, so the draw of "location" is diminished. At the same time, you don't want to compete on price. Your choices are few.

In this situation, the operator can use one or both of two things: facility innovation (i.e., climate control, sophisticated security features, etc.) or packaging. The latter wraps allied elements into the offering, shedding rivals from comparative consideration. Packaging may also provide the opportunity for realizing the convenience premium (see the February 2001 issue).

If you are succeeding in your self-storage business without these techniques, then I'm sure you're asking yourself: Why change? If price competition works for you, there is no reason to change. But if not, your goal is to change your market posture so you no longer get calls for the price of a 10-by-20 or a 6-by-12. Instead, you'll get requests for the "packages" you have created. Now you are in control. Marketing can get that done.

It's Your Show

It all starts with your urge to separate your facility from the others. You control the content of the packages, you set the pricing, so you control the prospect conversation--it's your show! Done correctly, marketing shows prospects you are on the ball, not just one more facility. You may get the awkward feeling that operating this way is entering into a "different" business. Possibly. Storage units become simply the commodity that is now a component of each package you are offering. Is this more complex? Yes. Is it more lucrative? You bet!

As competition makes things livelier, the future opportunities for self-storage require differentiation. It insulates a facility from the effects of competition and is more rewarding. It sounds like win-win situation to me.

 Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at 208.463.9039. Further information can also be found in Mr. Harley's book, Hard-Nosed Marketing for Self-Storage.

If you have been attending tradeshows and state-association meetings, and have been reading any industry-related publications, you would probably agree the issue of late fees is one of the hottest and most important topics in self-storage today. This month's article focuses on the history and recent developments in this important area.

The Legal Principal

A late fee is a "liquidated damages" clause in your rental agreement. In simple terms, a liquidated-damages clause in any contract presumes there is a possibility that one of the involved parties might breach the contract, and fixes the amount that will be awarded to one party in this event. A liquidated-damages provision is enforceable only if the anticipated or actual loss caused by the breach will be difficult to ascertain at the time it occurs, and is not so large as to constitute a penalty.

In the self-storage application, the rental agreement anticipates the possibility the occupant will not pay rent on time. It is, therefore, appropriate to set a fixed amount of damages the parties agree the occupant will pay if he is late with rent. This is necessary because it would be difficult, if not impossible, to calculate the exact amount in damages an operator suffers as a result of any one occupant's delinquency. The difficulty lies in the fact that, in any given month, the number, amount and length of delinquencies will vary. Since damage from late rent is incalculable, a late fee is appropriate in rental agreements. However, the fee may not be so large as to "act as a penalty." In other words, it must represent a fair approximation of actual damages suffered as a result of the late payment.

How the Trouble Started

While the issue of late fees had been on the minds of some state attorney generals, it came to the forefront in the summer of 1997 in the case of Louis Birch et al. v. United Cable Television of Baltimore. The case involved an attorney, Mr. Birch, who was charged a $5 late fee by United. He felt a $5 late fee on a $20 cable bill that was only paid a few days late was a penalty and, therefore, not a valid liquidated-damages provision. When Birch called to argue the $5 charge with the cable company, the "well-trained" operator suggested she could disconnect Birch's service if he did not like their policies and fee structure. Birch then sued on behalf of himself and the other 112,000 cable subscribers who may have paid a late fee during the prior three years.

The short conclusion to this story is that in June 1999, the Maryland Court of Appeals affirmed a judgment in the amount of $6,701,503.60, representing the $4.50 difference between the late fee amount of $5 and the actual damages suffered by United Cable of 50 cents per late payment. The court also awarded pre-judgment interest and attorneys fees because it concluded a $5 late fee on a $20-per-month bill constituted a penalty and, thus, was a punitive liquidated-damages provision.

After Birch won his case, he began suing other public utilities, such as his telephone company and the electric company, for their high late fees. He then began packaging and selling his ideas about class-action lawsuits for high late fees to other attorneys, who would bring the actions against other utilities locally. Two months after the Birch decision was affirmed by the Maryland Court of Appeals, David Grinnell sued Public Storage for its late fees in the Circuit Court for Baltimore City, Md. The attention of self-storage owners, associations and attorneys was then focused on the issue of self-storage late fees.

The Public Storage case has not reached a resolution as of press time. However, if there is a big verdict or settlement in favor of the occupants, this will surely initiate another stream of class-action lawsuits in other states where there is not a statute protecting owners. In the meantime, a Texas trial court recently dismissed a class-action late-fee suit. The late fee was $12.50 on a $300-per-month unit, and the plaintiffs alleged this was an unreasonably high late fee. In this case, a dismissal is a victory as a precedent has been set. That does not, however, mean the attorneys in Texas are not looking for another, more dramatic late-fee case to file.

Definition of a Late Fee

It is important to remember what a late fee is--and is not. A late fee is a charge assessed by an operator for an occupant's failure to pay rent when due. It should accurately reflect an approximation of the damages an operator actually suffers as a result of the late payment. A late fee cannot be designed to act as punishment. How do we calculate our late fee?

An operator may include in his calculation of the late fee the loss he incurs as a result of the late payment. Of course, what makes it so difficult to calculate is that you do not know whether the tenant is going to pay late by one day, week, month or longer. An operator can make a reasonable approximation and calculate the lost value by either a) the state's legal interest rate or b) the actual out-of-pocket costs to the operator, such as late fees on mortgages or other bills that were unable to be paid as a result of the occupant's failure to pay rent.

The operator can also include in his calculations the work performed to ensure the tenant has not vacated the space, such as a physical inspection of the unit, the time the manager spends attempting to collect rent, and any reminder letters/postage. All these charges must be divided by the average number of delinquencies in each month. As you can see, even if you were to charge a portion of the time your manager devotes to these activities every month and divide by the number of delinquencies, the actual dollar figure is low.

You should not include "actual costs" in your calculation, for example, the cost of sending certified notices, placing lien-sale advertisements, running lien searches through local or state recorders offices, the cost of cutting locks or performing an auction, or sale expenses. That being said, how do you know if your late fee accurately reflects costs and expenses but is not deemed a penalty? Some states have recently solved this problem (not necessarily to the operator's advantage) by enacting statutes that provide the appropriate late fee in a self-storage situation. Where this isn't the case, operators should maintain strict guidelines for actions taken in the event of late payment so they can demonstrate the expenses incurred as necessary and justifiable.

Legislative Update

The best way to avoid late-fee litigation is if your state enacts a law setting the fee that can be legally charged. Hopefully, it will also include a safe-harbor provision protecting operators from any litigation inspired by late fees in compliance with the law as well as any charged prior to its passage.

Before you become too excited by this proposition, the experience thus far in self-storage late-fee legislation has not been completely positive. As of press time, only three states have statutes that clearly set forth the appropriate late fee for self-storage. The first is North Carolina, where the late fee may not exceed 15 percent of the rent due. This is certainly easy to understand, but probably difficult for software to calculate based on different rates of rent for different size spaces. The next state with a statute is Arizona, which allows a $5 late fee on a balance of less than $25, and a fee of either $10 or 5 percent on a balance of $25 or more. The Arizona law is not as clear in its application to self-storage, but you should comply with this formula until a court determines it is not applicable to this industry. Finally, California put a statute into effect Jan. 1. The California law states if a balance due is less than $60, you may not charge more than a $10 late fee. If the balance is $60 to $100, you may not charge more than a $15 late fee, and if the balance is greater than $100, you may charge $20 or 15 percent of the balance due, whichever is greater.

Maryland also has a statute regarding late fees; however, I cannot state with any certainty that the Maryland legislation applies to self-storage because the law refers to the industries that provide consumer services. One could certainly argue the rental of a self-storage unit may not be a consumer service. Nevertheless, until there is greater certainty as to the applicability of this act, owners in Maryland ought to factor these guidelines into their calculations.

According to the statute, the late fee is limited to the greater of $5 or 10 percent of the monthly rental payment, and no more than three late fees may be charged; the late fee must be disclosed in the rental agreement in at least 10-point bold-face type; and the late fee may not be imposed until 15 days after the payment is due. That being said, the law provides for an exception if the entity to whom you are renting is a business tenant. Again, implementation in your computer system can be the most difficult part of following this act.

The closest thing to a pro-owner late-fee bill for self-storage was proposed and narrowly failed to pass in Missouri. I expect the act will be reintroduced this year and hopefully pass, at which time it will act as an example to other states. The proposed Missouri act called for $20 or 20 percent of the monthly rental amount, whichever was greater, for each late rental payment. The act specifically defines this amount as reasonable and not a penalty. It further provides that an operator can set a higher late fee if it is reasonable to do so, with the operator having the burden of proof.

In concordance with the Self Storage Association and other industry professionals, I encourage you to get involved with your state associations, which are pushing to introduce and pass legislation similar to the SSA model act (the proposed Missouri act). The best way to know you are safe is to have a piece of legislation that provides guidance on late fees and a safe harbor for owners.

Litigation Update

Most punitive late-fee cases do not specifically apply to self-storage, so we can't gain a lot of insight from their results. We see late charges for cable television and apartment rents being litigated, but the court rulings are generally inconsistent. For example, in Alabama in 1993, the Supreme Court ruled that a late fee equal to one-third of a month's rent was an illegal penalty. However, in 1997, an Indiana Court of Appeals held that a late fee equaling 30 percent of the monthly rent was reasonable.

Courts have also held that prompt payment, on-time payment discounts or "street rent" (where rent is reduced to a certain amount as long as it is paid by a certain date) is simply an attempt to disguise a late fee. The courts are treating those arrangements as liquidated-damages clauses and applying the same standards to determine whether those arrangements are punitive and, therefore, unenforceable.

Conclusion

Louisiana came close to having the worst of all possible late-fee bills passed against its owners. One of the reasons a harsh late-fee bill was proposed was because a state legislator failed to pay rent for several months and was hit with tremendous fees, some of which were proper late fees, others of which did not appear to have been properly itemized. Nevertheless, the legislator/tenant clearly intended to "strike back" at the industry.

It is important operators clearly itemize charges in their rental agreements and, when notifying tenants of charges they have incurred, that they clearly distinguish between late fees and other charges, such as those incurred as a result of enforcing your lien. It is important that operators work with their state associations to pass legislation to protect themselves when it comes to late-fee charges; but in the meantime, operators should be extremely cautious. A conservative late fee may pay great dividends later in the avoidance of expensive class-action litigation.

As always, I look forward to any comments you may have involving this subject or others you would like to see addressed in this column.

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which represents owners and operators of commercial real estate, including self-storage. Mr. Greenberger, licensed to practice law in Ohio and Kentucky, is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association, as well as a regular presenter at Inside Self-Storage Expos. Questions, comments or suggestions for future topics can be sent to Jeffrey Greenberger c/o Katz, Greenberger & Norton LLP, 105 E. Fourth St., Suite 400, Cincinnati, OH 45202; call 513.721.5151; e-mail [email protected].