It seems like the only time a tenant’s file is checked to verify that they have a signed lease is when that tenant goes into lien. By that point, it’s a little late to be discussing how a tenant was able to access the facility and move its contents into a space without actually signing a lease. But if you are an operator that has dealt with this situation, don’t worry. You are not alone. In fact, there has been an increase in situations like this where tenants are able to access and secure a storage unit without ever having to finalize their move in process, including the requirement to execute a rental agreement.
There are plenty of arguments to be made that the tenant accepted the terms of the facility’s rental agreement when they took possession of the space and more so if the tenant paid any money to the facility for the benefit of the use of the space. But in the absence of a signed rental agreement, the facility must be prepared for the potential challenges it might face from a tenant whose property is to be foreclosed. Did the tenant have knowledge of the facility’s lien rights over its contents? Did the tenant consent to the imposition of a lien?
Judges and arbitrators are often reluctant to confirm the rights and protections granted a self-storage facility operator against its tenants without the presentation of a signed lease. Commonly a tenant in default who is presented with the risk of foreclosure will contend that they were never presented with the terms and conditions of the lease or otherwise “did not know” that their stored property was subject to a lien and foreclosure. In such a case the Operator must build its defense from other facts in the case, rather than the simple act of presenting a copy of the signed lease to the decision-maker for the dispute.
So, what should an operator do? First, if this is happening at your facility, you must review your rental process to determine how this is happening. Is there a flaw in your management software? Is it a failure of your on-site manager? Whatever the cause, the gap in the process must be fixed so that, in no uncertain terms, a tenant must execute (electronic signature is fine) a rental agreement before taking occupancy of a rented space. Second, a facility should conduct regular audits of its tenant files (electronic and/or physical) to verify that, for every unit occupied on the property, there is a corresponding executed rental agreement. If a signed rental agreement is missing, the facility would have the right to request the execution of a current lease from the tenant as a condition for being allowed to remain a tenant at the facility. In the absence of a signed lease, a facility operator would have the right (after notice and an opportunity for the tenant to cure) to restrict or control the tenant’s access to the facility until the tenant complies with its obligation to present a signed lease. If the tenant refuses, the operator reserves its right to terminate the tenant’s occupancy and require the tenant to vacate (by eviction or unlawful detainer if necessary).
Self-storage facilities can be busy places and owners and managers are often distracted by marketing, selling and maintaining the operation of their business. But one of the most important and vital pieces of a self-storage business is the confirmation of the rights and responsibilities of the owner and tenant through the initial execution of the parties’ rental agreement. Check out what’s happening on your properties. Don’t wait until it’s too late before conducting your audits.
This article was originally published in Self Storage Legal Monthly Minute by Scott Zucker, January 2024
Scott Zucker is a founding partner in the Atlanta law firm of Weissmann Zucker Euster Morochnik & Garber P.C. and has been practicing law since 1987. Scott represents self-storage owners and managers throughout the country on legal matters including property development, facility construction, lease preparation, employment policies and tenant claims defense. He also provides, on a consulting basis, advice to self-storage companies in the areas of foreclosure and lien sales, premises liability and loss control safeguards. Scott can be reached at 404-364-4626 or by e-mail at Scott@wzlegal.com.
