There are potential legal land mines throughout self-storage. However, an operator is most frequently exposed to potential liability when selling or disposing of a tenant’s property. As such, operators should take multiple steps to minimize their potential risk when it comes time to auction off a tenant’s property or dispose of abandoned property.
The first line of defense is to have a thorough process by which the operator ensures compliance with the state self-storage laws. For example, operators should double check that the tenant’s file includes a signed rental agreement; that the lien notice was sent to the address in the rental agreement (or subsequent written change from the tenant); that the lien notice was sent at the proper time, in the proper method, and includes all statutory requirements; that the required advertisement was placed at the correct time, in the correct place, and includes all statutory requirements; and that the sale was conducted at the proper time. A detailed checklist can be an operator’s best friend during this process, allowing the operator to check off that each step and/or benchmark has been properly completed.
For non-auction disposal of stored property, operators should not dispose of property in a storage unit unless the tenant abandoned the property in writing or the state’s self-storage laws provide a method by which the operator can declare the property has been abandoned. In today’s world, operators cannot assume that the property has been abandoned, as that can be a recipe for a lawsuit by the tenant. Additionally, verbal abandonments are generally not enough either, as it can become a game of “he said/she said” if the tenant comes back at a later time and contests the abandonment. Consequently, it is always best to get the abandonment in writing, even if it is simply an email from the tenant.
Nevertheless, the best laid plans often go awry. Even if an operator has detailed lien foreclosure and abandonment procedures in place, mistakes still happen. As such, operators should have a final line of defense in place for their protection: sale and disposal insurance. Sale and disposal insurance is insurance coverage that is unique to self-storage and is usually offered by insurance companies already working in the self-storage industry. It can help protect operators from a variety of issues, such as mistakes attributable to human error that result in wrongful sale claims, the failure to follow the procedures set forth in the state self-storage act in foreclosing on the storage lien, a sale of active-duty military tenants, and wrongfully disposed of property. Essentially, sale and disposal insurance can be a backstop for those times when an operator is most exposed and can step in to defend and protect the operator.
Moreover, as many operators already know, angered tenants can file lawsuits even when the operator correctly followed the state’s self-storage laws, causing the operator to spend tens of thousands of dollars to defend its proper procedure. Sale and disposal insurance can also step in and help in these instances as well by covering defense and legal costs.
Lawsuits can be unpredictable, even with limitation of value provisions in rental agreements, and operators can find themselves on the hook for large judgments for simply failing to follow the proper procedure in foreclosing on their storage lien or disposing of stored property. Sale and disposal insurance can help protect your business and even provide some peace of mind knowing that you have something to fall back on during those aggravating and stressful times.
This article was originally published in Self Storage Legal Monthly Minute by Scott Zucker, August 2023
Ashley Oblinger is an attorney in the law firm of Weissman Zucker Euster + Katz P.C. in Atlanta, Georgia. Ashley specialized in business law and self-storage law, advising self-storage facilities throughout the country on all legal matters, including lease preparation, lien enforcement, tenant issues, tenant claims defense, and employment policies. Ashley can be reached at 404-760-7434 or at Ashley@wzlegal.com.