Self Storage University Podcast: Episode 38

Why A Paper Trail Is Essential



A “paper trail” is not a paperboy’s route, but an essential part of running your storage facility. So how do you properly “paper” your property? That’s the topic of this Self-Storage University podcast. If you want to minimize potential litigation and its sources, then having a system to document all issues is essential.

Episode 38: Why A Paper Trail Is Essential Transcript

In the Wizard of Oz, they had a yellow brick road, but in the self storage industry typically… This is Frank Rolfe for the Self Storage University Podcast. We're going to talk about a paper trail: what it is, how to do it, and why you need it.

So hopefully you've never been sued, but at some point as a self storage facility owner and operator, you probably will be. It's hard in America today to escape litigation. We have more attorneys in America than we have in all the rest of the world combined, and we mint an extra 40-50,000 of them I believe every year straight out of law school. So what happens when you have so many lawyers floating around is you have endless litigation, and America keeps getting crazier and more frivolous every year. And if you should be sued, the first thing you'll be asked by your attorney is to give them kind of a chronology of the dates and then the paper trail of all the different things you have in writing that show exactly your position.

Now, if you don't have those items you're in real trouble because without that paper trail, everything then revolves around nothing more than hearsay. The customer, the employee, the vendor, they'll all tell their side of the story and you have nothing to disprove what they say. And if you think for a moment that they will not lie under oath, then well you've obviously never been in litigation. People tell untruths all the time, and there's no way for the court to really say who is telling the truth unless you have that paper trail.

So let's start off with the paper trail with the customer. What do you need to have as far as a paper trail to prove exactly where you stand so the customer can't lie? What do you need to have? Well clearly first off you need to have a copy of the rental agreement, the agreement under which they rent the unit from you. And it needs to be signed by the customer. So let's start off with that basic building block. In America today, you can no longer enter into an agreement with a handshake. You can't just have someone say, "Okay, I promise to pay you X dollars a month," and you say, "Okay, well have a good time with it then." Those days ended maybe a century ago, so you've got to have that agreement.

Number two, you have to have copies of every invoice you've sent to the customer to prove out what they were supposed to pay each month. You've got to have the paper trail of the accounting showing that they paid or did not pay. You need to have a copy of any warning or demand letters you send them for not paying, or anything else that they've done wrong. And then you have to have all the paperwork of everything you have done as far as taking the unit, selling it at auction, anything which transpired. So basically, every single thing that happens between you and the customer must be fully documented without exception. If you don't have these things, more than likely, if you get sued, you will be in real trouble. And it's too late to get them after the fact. It has to be done well in advance.

Now let's talk for a moment about your employee. So what happens with your employee, what do you document there? Well, you have to document their employment agreement. You have to document that you've paid them and that you've paid them in accordance with all withholding and all other tax implications. You need to show any letters, where you sent them, a notice that they weren't doing something right on the job. Basically, everything that they do, other than your casual conversations of, "How's it going? How did it go this week?" that all needs to be fully documented in writing. A very common issue right now that attorneys prey on our owners who fail to have a good paper trail with their employee, and the employee later claims that they're owed massive amounts of overtime. Those suits are horrible if you don't have records. People will claim the owe them vast amounts of money, typically when you're firing them. It suddenly comes to light that you supposedly had them do all these items and you never pay them, and they'll go and they'll demand all that money, and who knows what kinds of damages. Bear in mind that today the way America is developed, the employees are probably more dangerous from a liability perspective even than your customers. So you must document everything with your employee.

Next up to bat your vendor. If you're going to have someone come in and, for example, repave your roads, you have to have a full paper trail of everything. The agreement of exactly what they're going to do, how much exactly it is going to cost, how long it is going to take, when they're going to start, when they are going to end, who carries the insurance. You'll need copies of their insurance unless you're doing it under your insurance, you will need copies of their final bill, copies that the bill has been paid. If there were any problems along the way, demand letters, any notices that you've given them, they all must be kept. Once again, if you go to court, then you can produce this paper trail, and typically in court the paper trail always wins.

Now how long do you have to keep the paper trail? Well, I would keep it an awfully long time. In a litigious America, you never know when the suits are going to pop up. Now you do have a statute of limitations but in some cases, the statute of limitations doesn't kick in until there's some kind of knowledge of whatever it is that they're suing you over to begin with. So I would keep all your records and documents for as long as you humanly can. You should not have that many to begin with and you can maintain them digitally. But you've got to keep them around for that rainy day when suddenly, out of nowhere, you get sued for probably a reason that isn't even fair or reasonable that you would be sued over.

And don't forget, once you have all of that paperwork, and you have it all sorted and ready to go, it's a great feeling of relief. Because now you know if anything should happen, you've got the paper trail. And when you go to court, if you have the paper trail and the other party does not, you typically win. Judges always seem to favor the paper trail over verbal hearsay. That's the whole foundation of the law. If you go to look at a law school, look at the library, you'll see nothing but book after book after book. As a country, we have done a good job of categorizing and recording all of our laws. That's why when there's a lawsuit, typically they refer back to many, many other cases, sometimes 100 or more years in the past, because we do keep a good job of having that written record.

But unfortunately, a lot of self storage owners fail in this regard. They don't process everything in writing. They don't save everything in writing. They approach life kind of in a conversational format. They take people at their word, and they assume that they reciprocate, and they don't really feel in danger. But the problem is today, you're always in danger, always in danger of litigation on any number of fronts. As a result, the only way that you can succeed, you can survive in a litigious world is you've got to have a paper trail for your self storage facility. If you don't have one, start today. You can't go backward, this is true, but you can definitely be a smarter operator going forward and make sure that you catalog and maintain everything in writing.

And make sure anytime you talk to someone if it's of significance, that maybe you follow up with an email explaining your understanding. If you talk to the asphalt company for what they're going to do, and the original bid was for replacement or repair of seven potholes, and now they say they detect there is actually 10 wouldn't hurt to send them an email saying, "As we discussed on the phone today, this is just to memorialize for the extra three potholes the price adjustment will be $1,340." That could come in very, very handy later. Remember, particularly at a vendor, if they should sue you they can cause you lots of problems. All that litigation is going on and litigation can take years, you may have great difficulty in selling or refinancing your property. So it's very, very important on all fronts to protect yourself to protect your investors to protect your employees. To protect everyone you always maintain a good paper trail. This is Frank Rolfe, the Self Storage University podcast. Hope you enjoyed this. Talk to you again soon.