The Importance of Reviewing and Updating Your Rental Agreements
By Scott Zucker and Carlos Kaslow
The self-storage rental agreement is one of the most important tools in operating a self-storage facility. Therefore, facility owners and operators need to take the time to stop and review their agreement to confirm that the document they are using is up to date and effective for its intended purpose. Consider some of these questions when looking at your rental agreement. When was it drafted? Does it follow your state’s self storage lien law? Has your state law been amended since the rental agreement was written? Does your agreement consider recent court decisions that interpret storage agreements? Depending on your answer to some of these questions, it may be time for you to consider updating your agreement.
Statutory Changes
Almost every state’s self storage lien law requires that the rental agreement contain certain language that notifies the tenant of the landlord’s lien on the tenant’s stored property and the right to sell the property if the tenant defaults on the rent payment or other charges. Several state lien laws even require that this notice be in bold type or printed in larger type size. Again, it is crucial that whatever is required by your state storage statute be incorporated into your rental agreement for that state. Courts will likely not uphold a facility’s lien enforcement rights if the facility has not properly complied with the statute’s requirements. Operators in states where the lien laws have recently changed must pay attention to any statutory changes that require updates to their agreement’s language.
One of the most significant changes to the state lien laws over the last seven or eight years has been to authorize facility owners to limit the value of the property that their tenants may store in the rented space. However, the owner must incorporate language into the rental agreement as determined by their state legislature for the courts to enforce the limitation. A rental agreement paragraph that limits the value of the property that the tenant may store to $5,000.00 per space can be a powerful defense to a tenant’s lawsuit claiming loss to property allegedly exceeding that amount. However, such a provision may not be enforced if the lien law requires that the provision be printed in boldface type or be underlined to be effective. The Texas lien law is an example of a state that will uphold a value limitation, but only when printed in bold typeface or underlined.
Operational Changes
Operational changes can arise from new technology, a new software management system, a change in the law, or a determination that the business needs to do things differently. For example, standard practice in the industry for two decades was to collect the tenant’s name, address, and phone number. Today, most rental agreements also have spaces for the tenant’s email address and cell phone information. Software management programs now provide operators with methods to use these new tenant contacts in ways that did not exist just a few years ago. Also, in dozens of states, the state lien laws have changed and allow operators to send lien notices by email in lieu of standard mail delivery. Rental agreements must reflect these technological changes that have revolutionized how operators can communicate with their customers.
Another area of change is locking systems. For years, operators have required the tenant to provide their own lock, and the terms and conditions in rental agreements have reflected this requirement. However, the world of self storage locks has changed. If you provide your customers with locks, have an inset locking system, or even an electronic locking system that allows the tenant to open and lock the space with their cell phone, your rental agreement will need to be modified to reflect this advancement. This is another example of why the rental agreement must conform to how the operator manages their self storage business.
One of the most crucial ingredients to a strong storage rental agreement is a clear
statement that the relationship between the parties is that of a landlord and tenant
(“Owner” and “Occupant”). The owner is only renting a designated space to the occupant
that will be used for storage purposes. The self-storage owner does not take care, custody or control of the occupant’s property, no bailment is created by the rental agreement and the owner is not a warehouse operator. An occupant’s claim for loss of or damage to stored property is the most common type of claim made against self storage facilities. This is understandable given the millions of spaces rented each year. Keep in mind that a judge who is deciding a case concerning a tenant’s claim will look primarily to the rental agreement to determine the facility owner’s obligations to the tenant. A bailee has a direct relationship to the property in its custody and is held to a much higher standard of care than that of a landlord. A clear statement that a storage operator in not a bailee should be expressly contained in a rental agreement.
A rental agreement must also be clear on who will bear the risk of loss to stored property. Typically, each occupant is responsible for the loss of or damage to their stored property. Their property is stored at their “sole risk.” A rental agreement liability waiver must meet specific legal standards to be enforceable. First, it must be conspicuous. It cannot be buried in the text of the rental agreement and hard to spot. You can make it conspicuous by clearly labeling the liability waiver and putting it in bold easy to read type. Second, it must be drafted in clear understandable language to explain that it applies to the occupant’s property. Finally, it must state that it applies to the owner’s negligence to bar claims based upon negligence.
Practical Considerations
You have the right to update and revise your agreements. Self storage tenancy is on a month-to-month basis, and therefore the operator can change the terms and conditions by giving tenants at least thirty days written notice of the new terms and conditions. This is not a negotiation and the tenant is not required to agree to the change. Rental agreement updates are recognized as an appropriate unilateral change of terms. But to work, the rental agreement should contain a “change of terms” provision. A change of terms may be a simple rent increase, but it may involve significant changes to the rental agreement. The owner’s responsibility is to state the new terms and conditions clearly and when they go into effect. The customer can accept the new terms and conditions by staying in the space or certainly by paying the next month’s rent. If the customer does not leave, the new terms and conditions can go into effect on the date stated in the notice.
No rental agreement is perfect, nor does it have to be. A good rental agreement states that the facility operator rents a space suitable for storage. The tenant has the right to use the rented space for storage purposes subject to the rental agreement’s terms, conditions, and limitations. It is a commercial real estate transaction and not an agreement to store the customer’s goods. There is enough confusion regarding the rights and liabilities of self storage owners as it is. There need not be further confusion based upon a poorly written or incomplete rental agreement. If you haven’t done so in a while, take some time to read your agreement and test it to see whether it needs updating. The bottom line is that, if there is some right that you believe you want to secure for yourself in running your storage facility, you must include that provision in your facility’s rental agreement.