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GETTING THE LANGUAGE RIGHT
Protect Your Business With
A Strong Rental Agreement
By Tammy LeRoy
With few exceptions, the mobile storage industry cannot craft rental agreements based on statutes, as does traditional self storage; governing statutes for mobile self storage simply aren’t in place in the majority of states. Instead, the industry operates from a contractual position. When this is the case, it is critical that contracts protect the operator as much as possible, drafted in a way that is likely to stand up to challenge in the courts.
Only California, Florida, and Michigan have state self storage laws that specifically address mobile self storage by including mobile containers as selfstorage units. In those states, it is clear that mobile storage agreements can be designed much like self storage rental agreements, according to Scott Zucker, a partner of Weissmann & Zucker, P.C., in Atlanta, Ga. “In other states, operators can choose between rental agreements and uniform warehouse receipts, or even some modification between the two,” he says. “Without statutory guidance as to what is correct, it appears that anything that includes some basic elements will work as a customer agreement.”
Those basic elements, Zucker says, include a waiver of certain warranties; identification of prohibited items to be stored; restrictions on pickup and delivery distances; right of access; delivery waivers (addressing permission to place the container in the driveway and releasing claims for any damage occurring during delivery or pickup); and, of course, outlining the rights of the operator to enforce a lien on the stored property if there is a rent default. However, he cautions, “Without specific law on these topics as it pertains to mobile storage, operator agreements will vary from state to state and even from business to business.”
“There are no statutes,” echoes Mobile Self Storage Association President Randy Weissman. “When you are operating in a contractual world, you have to be sure your contract complies with your state laws.” Weissman adds that although there are basically 50 different sets of rules, many states have adopted the Uniform Commercial Code or some modification of it. Numerous mobile storage businesses operate from that base. “There is no cookie-cutter answer, but there are some guidelines,” he says. “You have to talk to your own local attorney to find those out.”
Special Concerns
Zucker says that because an increasing number of local areas are requiring permits for container placement or even ordinances restricting their use, an operator needs to include language in the rental agreement obligating the customer to obtain the necessary permits or verifying the legal right to deliver the container. Also, some mobile self storage rental agreements include language that says customers are liable for the accuracy of information regarding customer addresses or storage site locations, and are responsible for additional travel or storage charges as a result of insufficient or inaccurate information regarding a pickup or drop-off location. Other additions include customer indemnification against legal action and/ or claims resulting from customer-caused damage, clauses that set the jurisdiction in the event of a legal dispute, and waiver of jury trial clauses. Weissman also adds that a declared value clause is particularly important to protect operators. He stresses that whether or not you ever touch customers’ goods, as do mobile storage operators that provide labor, will make a great difference in the type of rental agreement you need. “Once you provide labor, you’re a mover,” Weissman says. “Then you’re responsible for what you load, and you’d better be doing an inventory on each item. You’re operating in a whole different legal environment.”
A Questionable Correlation
Even with the added items operators include when adopting a self storage lease to fit their mobile businesses, Jeffrey Greenberger, a partner at Katz, Greenberger & Norton LLP in Cincinnati, Ohio, says adapting a self storage lease is not a good idea for mobile storage. “I know the industry likes to ‘piggyback’ on the other, but there are a whole lot of things that are really very different. Things must be addressed in a mobile storage lease that probably aren’t as big of a deal in a brickand-mortar self storage facility.”
For example, Greenberger asks, “Are you crossing any state lines? Which state’s laws apply, then? You set your jurisdiction clause in your lease and then hope it sticks.” There are other differences to consider as well. Greenberger asks, “What is your lien right on your own box? Do you have to file a court order to be able to go on the property and take it back if they don’t pay you?”
Outlining what will happen in the event of a default is a very important clause in a rental agreement. “Only a few state’s laws have incorporated the idea that a mobile box has lien rights like selfstorage,” Greenberger says. “There are 47 other states and the District of Columbia where I’m not sure that, if they don’t pay you and you follow the self storage statutes, you have the legal right to sell the stuff. As a matter of fact, I would bet that you can’t.” Thus, he says, operators need to know what their rights actually are rather than simply having default clauses stating what they can do.
Greenberger emphasizes also that three different lien situations should be addressed in a lease. “What happens if you drop off the box and leave it at their spot, and they pay for two months and then stop paying? Second, what if you drop off a box you are supposed to pick up full in three days, and when you go to pick it up, they say, ‘Get off my property?’ And the third scenario,” he says, “is what if you pick up the box and take it to your property and they don’t pay? Since there are three models, there had better be three options under the default clause.” Weissman says that his company looks to the Uniform Commercial Code (UCC) for their rights and remedies rather than self storage statutes. “It does give security interests in property for various reasons, and we think that you can squeeze a security interest in the stored goods―more like a warehouseman―under the UCC.”
Greenberger agrees. “To my knowledge, every state has a moving and storage, warehouseman-type statute that imposes certain requirements on what the storage companies may and may not do with the stored property while it’s in their possession, such as if they don’t pay you,” he says. “I have to encourage operators to look at that statute at least as strongly if not more favorably than the self storage statute for a lease model, because that’s what the business is more like. I don’t think any judge, when pressed to read the definition of self storage, is going to say that this is self storage except in one of those three states with the statute.”
Bailment Or No Bailment?
The UCC code is a better starting place than attempting to modify a self storage lease. “Simply deciding to act like self storage does not give mobile operators the legal backing to do so,” Greenberger cautions. “If you look at any definition of what self storage is, it’s generally defined as real property, designed and intended for selfservice storage by the tenant, who holds the key and has control of access to the
unit. The problem for mobile operators is that those containers are not real property, and the business doesn’t fit that definition.” He adds. “We don’t really know where they’re taking the boxes. And even if I know the location but I don’t have access to the box, I contend that’s a bailment, whether the customer locked it or not.” A bailment is the entrustment of property to another with the intent or understanding that the property will be returned to the owner, perhaps for a fee,―when it is claimed at a future date. Greenberger contends that a mobile storage operator has all of those bailment responsibilities. “A bailment imposes what is called an ‘ordinary duty of care.’ A judge gets to decide what’s ordinary. But if someone can proved that 99 percent of the time, your boxes only tip three degrees when loaded, and this time, it tips six degrees and you break stuff, I think you’re liable.”
Weissman, however, disagrees that a bailment is created. “If I don’t load the goods, I take care, custody, and control of the container when I pick it up but not of the contents. To put it in perspective, it’s just like what UPS® or FedEx® does— only my box is bigger.” Delivery service companies offer customers the option of buying insurance for the contents, but if you elect not to take it and there is a loss, the delivery service is not liable.
“When I say the UPS or the FedEx rule for mobile storage,” Weissman says, “I mean that, if I haven’t seen your TV before and didn’t even know you had a TV in there, how do I know if it worked or didn’t work? How can I be responsible for something I didn’t have the opportunity to inspect? My lease says I’m responsible if I drop the container from three feet or more. There would have to be physical damage to my container before I would cover the goods inside.”
Nonetheless, Greenberger says insurance clauses must be much stronger even than in a self storage lease, “… because we have no idea what’s going on inside that box.” He also cautions against lease language or advertising stating that the containers are stored in a climatecontrolled environment.
“Only one state—Nevada—even attempts to say what the term ‘climate control’ might mean,” Greenberger says. “That would be a very strong concern of mine if I was in the business.”
Distinctive Statutes
When traditional self storage was a new industry, rental agreements became standardized to some extent after enough cases came about in which lease clauses were contested. In this way, operators learned what they could and could not do. However, there was much more to the story of how standardized self storage regulations were formed.
“The operators in self storage banded together and said, ‘We’ve created this new business and there is no law on it,’ and they went from state to state trying to get their own statutes,” says Greenberger. “It was grass roots effort back in the ‘70s―not funded by the SSA. A couple of operators in every state who knew a legislator got a model bill together.”
This is the path Greenberger suggests for the mobile storage industry. He says that the place to begin is probably to look at the three states that already have statutes on the subject. That said, Greenberger notes that those statutes basically piggyback on self storage, and he is not a fan of that because he fears there may be problems down the road getting these statutes to hold up. Because the businesses are so different, Greenberger would rather see mobile operators draft models for new legislation that truly reflects what they do.
Weissman agrees. “You have to cover what you’re doing,” he says. “My lease is not a modification of a self storage lease. Just like you shouldn’t use a self storage lease if you’re renting a parking space, you shouldn’t use a self storage lease for mobile storage.”
Greenberger confirms the notion. “I wouldn’t bet my investment on that strategy,” he says. “I would find someone who really knows and understands the business to draft a good mobile storage rental agreement.”
Tammy LeRoy is Associate Editor of Mobile Self Storage Magazine and the Mini Storage Messenger, and is Editor of Self Stoage Now!.
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