Self Storage University Podcast: Episode 11

Six Steps To Reducing Your Liability Exposure

We live in an extremely litigious world, and self-storage owners are no different. All it takes today is the slightest mistake and you can immediately receive a lawsuit in the mail or person. So how can you protect yourself and your storage facility from these type of attacks? In this Self-Storage University podcast, we’re going to review some tips on how to mitigate your liability risk and run a tighter ship that is better positioned to meet the ever-increasing issues of a very litigious society.

Episode 11: Six Steps To Reducing Your Liability Exposure Transcript

Webster's Dictionary defines liability as the state of being responsible for something, especially by law. But, of course, we all know it by a different concept, and that's that liability means being sued. This is Frank Rolfe, the Self Storage University podcast. We're going to talk about six steps to reducing your liability or, in other words, your chances of being sued as a self-storage owner.

Let's start off with number one. You need to have signed leases. Now, why do you need a lease? Well, look around you in America today. There's a lot of litigation flying in every direction. You need to have something in black and white on paper that states specifically what the agreement is between you and your customer.

Now, why would you not have a signed lease? Well, sometimes the manager gets sloppy. They just don't have one handy. Maybe it just is inconvenient because they're trying to get out early because they want to go to lunch. So they just tell the person, "Oh, yeah. Well, we'll sign up a lease later. Just come by later and let's sign it up," and they never do. The next thing you know, you've got people renting property of yours with no actual written statement of how that relationship works.

So rule number one is you cannot do that. Every single unit in your storage facility, if it is occupied, must have a fully executed lease. It doesn't mean one executed just on your side of the equation, by the manager. More importantly, it needs to be from the customer. You can always state, "Well, we intended to sign it" or "There's another copy somewhere," which there might be. But if it's not signed by the customer, you have nothing, so you got to get a signed lease.

Number two, you need to state the maximum dollar value of what is contained in the unit. You'll notice you see that in every other service out there. If you send something by FedEx, it states that the maximum value of what you're sending is typically kept at a hundred dollars, $500, something like that. If you mail your crazy Stradivarius violin from Point A to Point B and it doesn't get there, you can't sue FedEx for $5 million, unless you bought supplemental $5 million of insurance.

Same with the contents of that unit. You don't want someone to later come back after a fire and say, "Oh, yeah. Well, see, I kept my incredibly priceless Faberge egg collection in that unit, and you owe me $180 million." So you've got to go ahead and set the maximum amount that that unit can have.

Number three, better yet, find ways for tenants to get insurance. Find an insurance carrier that will underwrite policies for people who store things so they have insurance. That way, they're not looking to you if the contents of their unit gets damaged or destroyed. They look to that insurance policy that they have for themselves. It's just good business.

Number four, make sure that you notify all of your customers that any property they store is at their own risk. Again, we see this in life all the time. Every time I go in the parking garage at the mall, there's a very prominent sign that says, "Any items left in the car are my sole risk and responsibility." Why do they do that? Well, because they're just a parking lot. They don't want someone to come in later and say, "Oh, I had a $25,000 diamond-encrusted Rolex in my car. Someone went in my car and stole it, and I'm suing you because you harmed me by $25,000."

No. Anything you leave in that storage unit that's at their own responsibility. They're grownups. They're leaving something in there, they're paying a rent, but you don't know if they left it in there. You don't really know what's going on. So it can't be up to you that it's all your fault if anything happens because you're not even in the equation. How many people inspect what people bring in and store? The answer, nobody. I'm assuming the person is storing items in there of their own choice and free will. That's just great and dandy and everything, until somebody shows up and sues you, claiming that somehow or other you damaged things, which you did not know what even were in there. Has to be at their own risk.

Next, you need to use preventative maintenance. Now, what does that mean? Well, basically in life, we all see these things as we go about our regular daily routines. We see open potholes with no markings around them. We see uneven pavement, and from that uneven pavement, you know someone's going to trip and fall flat on their face. It's just obvious.

So what happens? Well, we see these many things and every so often someone does one of those actions and somebody gets sued. But wouldn't it be better if when you see things, you fix them? Wouldn't that be a better way to go? What do they say? An ounce of prevention is worth a pound of cure. How very true that would be. So constantly have a methodology to check out your storage facility to make sure you don't have anything going on there that is going to result in liability. What are the most common thing? Well, slip and fall, right? That's huge.

How many times can you see these slip and fall issues well before they happen? The answer is almost always. That tree didn't just grow over time and changed the level of that concrete. It didn't happen overnight. It took years to do that. That pothole that you never fixed, which grew larger and larger now is right in the right position where someone walking down to fall in and break their leg. Again, it didn't just happen. Those areas you were going to stripe with reflective tape or something to show people at night the edge of building is there and you didn't get around to it? Well, again, why didn't you? It's amazing if you talk to insurance agents how many of the liability suits in America on storage operators are there simply because they failed to do their basic nuts and bolts of good business.

So all the time you need to be watching. Every time you go by your facility, you need to see, okay, now what in here could cause a problem and then immediately address it. And you need to [inaudible 00:06:55] that same attitude to everybody on your staff. Everyone needs to take a proactive stance and any time they see anything that could be in any way construed to be a liability hazard, it needs to be fixed immediately. Not in a week because in a week, someone probably will have already been injured and then you'll be sued.

Finally, number six, the number one spot for lawsuits for liability for most storage owners is what happens when people don't pay their bills, and that's been amplified right now during COVID-19.

So what happens if you don't pay your rent? Well, there's a process to that. If you don't pay your rent after various notices, ultimately, the locker is auctioned off. We all see this, right? We all see the popular show, Storage Wars. What's the show about? Well, it's the real-life adventures, although some say it's made up, of people who are bidding to buy abandoned storage units, unpaid storage units, buying the merchandise within it. Then they go out and try and resell it at a profit. That's what the show's all about, seeing whether they made a profit or a loss on whatever they bought.

But imagine if you screwed it up. What if you auctioned the wrong unit? What if you auctioned a unit that you thought was not paid, but in fact it was? They don't show that on the show, but that happens in real life. That's why before you ever even think about doing an unpaid unit auction, you must find the exact methodology by law to do. And you better make sure you follow every step.

Better yet, unlike in the show, you're not really wanting to do any kind of auction. On the show they do because they have to have material for the show. But the owners of those storage facilities, they don't make any money. They're selling those units off. They're rarely getting ever the amount that was owed in rent. Sometimes they do, but often they do not. So better yet, just make them pay the rent. I would much rather put more effort into making sure my customers pay the rent than I have to worry on an auction to try and get the same rent that I could've gotten from them. And beyond that, when I have the auction, I need to get a new customer. If I can get the old customer to pay, it's better.

How do you make a customer pay even in times of COVID-19? Well, just bug them a little. It doesn't have to be in a threatening manner. Studies have shown the people who go on collections and just contact people and say, "We noticed you hadn't paid. I just wanted to follow up and see when you were going to pay," that little gentle nudging can often get the job done. Being threatening typically doesn't. If you call and you're threatening, number one, they'll hate you. Number two, typically, if they're in dire financial straits, that not going to make them feel any happier, more loyalty-bound to pay you. But if you put in a little extra effort, if you had the manager devote a little extra time to try to follow up on accounts of people who have not paid, that's probably the best preventative medicine you can take because that will keep you out of the loop of ever doing anything wrong.

If you're going to auction off a unit make sure you double and triple check your work. I would much rather delay the auction and make sure I've done everything perfectly than to find that I did it and I did it wrong, now I have huge liability.

There's obviously one final part, but it goes without saying, underlying, backstopping everything we've discussed here, you've got to have insurance. You've got to have the right amounts and the right kinds of insurance. If there's one thing that every storage owner needs to make sure they have it's proper insurance. You need liability insurance, you need property insurance. You may even need employee practice liability insurance, also known as EPLI. Get with your agent and find out how much insurance you need. Make sure you have the right amounts because that is the best protection of all.

This is Frank Rolfe, the Self Storage University podcast. Hope you enjoyed this. Talk to you again soon.