Like any business, self-storage owners cannot succeed without collecting their rent each month. To make this possible, smart owners build a “collections ritual” that influences the action steps they take and help shield them from liability and failure in getting the necessary funds. So what are some ideas for a successful “collections ritual”?
Make sure you have a copy of a fully executed lease
There’s no point to having a standard lease that’s approved by your attorney if you never actually get it signed. Some manager will let the customer take possession of the unit with the loose promise they will sign it and return it later – and never do. Other managers will lose the lease in a pile of papers that ultimately ends up in the trash. This is completely unacceptable.
Make sure that lease provides for a maximum dollar amount of their items stored
You cannot leave the supposed value of the items stored to be open-ended – what if they claim they stored a priceless gold statue worth $1 million that has now gone missing? Your attorney needs to help you include a provision that is legal yet allows you to cap the value of the items in the unit. Most large companies such as FedEx already have this language (although they allow you to buy insurance for larger amounts but within a limit).
Offer tenant insurance so their goods cannot be lost without compensation
One way to fend off lawsuits about damaged or missing goods is to help the customer obtain insurance for their unit’s contents. This is typically extremely affordable and the only reason everyone doesn’t have it is because they don’t know how to get it. So help them on this issue and it’s a win/win.
Make sure your lease states that all property stored is at tenant’s sole risk
Talk to your attorney about placing language in the lease that “all property is stored at the tenant’s sole risk” to fend off many frivolous suits. This has been a mainstream of many industries, such as shopping center parking lots that have signage stating that anything you leave in your car is at your own risk. This makes complete sense and should not scare off your customers.
Try to collect money in a manner that does not lead to an auction of the tenant’s possessions
You need to develop a collections chronology of events when a customer does not pay, and to review it with your attorney to make sure that it complies with all federal, state and local laws. The chronology should not be a jump from rent being one day late to you sending a threatening letter. You need to get your manager actively involved (if legal in your area) in making pleasant “following up” calls to check on the rent that are not adversarial. The key is to get paid and have the customer still like you rather than to get paid and the customer being mad. A mad customer will not stick around.
If you must hold an auction make sure you have doublechecked each item in the chronology
One of the unique features of the storage industry is the ability to collect rent due via auction of the unit contents. This can be extremely dangerous from a litigation perspective. All you have to do is miss the lawful chronology of events by one day or one sentence and you could be in huge trouble. Most insurance agents will cite the auction of a unit that is done improperly as the #1 insurance nightmare in the industry. Make sure you are never guilty of this.
Have a program of preventive maintenance
A proactive attention to any items that could cause liability is a great way to mitigate your risk. For example, if you have a raised area in the pavement due to tree roots or some other issue, this is clearly a tripping hazard. If you fix it now, it will cost you a small amount of money. If you wait, and somebody trips and sues you, then you still have to pay to fix it, but you also either have legal bills or an extremely unhappy insurance company. It’s amazing how much litigation in self-storage that could have never happened if the owner was watching out for these problems in advance.
Life has uncertainty. You can’t own a self-storage facility without taking risk. But there’s a difference between the risk none of us can avoid, and the risk that you bring upon yourself by not following sensible guidelines. Plan ahead and save yourself a lot of grief.