There are numerous risks a self-storage operator assumes in running a facility, including damage to the facility itself, injury to a tenant or employee, or a tenants property could be damaged, stolen or even improperly sold. To protect themselves from these risks, facility operators can choose from a variety of insurance coverages.
Coverages include those that protect the value of physical buildings and other property improvements, liability and workers compensation insurance to address the risk of injuries, and customers goods legal liability to respond to claims by tenants when property is damaged by the negligence of the operator. Theres also sale and disposal insurance, which can protect an operator from claims by tenants alleging their property was wrongfully foreclosed. Essentially, theres insurance for most every kind of risk that could occur within the context of self-storage.
The cost of the insurance depends on the size of the facility, history of its claims, maintenance of the facility, and level of deduction requested. For the most part, having sufficient insurance is a necessary part of any business. However, there are numerous things a self-storage operator can do to reduce his overall risk.
Maintenance and Records
To avoid potential claims of personal injury or property damage, a facility operator must do everything he can to regularly maintain his property. He might focus on maintaining roll-up doors to avoid injuries during operation, or create safety procedures to ensure driveways and walkways are properly salted in winter to avoid potential slips and falls. He should regularly check his roofs and gutters to avoid leaks and backups, and perform inspections to verify fire-safety systems are properly functioning.
Having a positive approach to maintenance the prevention of injuries and property damage will not only reduce the likelihood of such occurrences, but will impact the cost of liability insurance. Its important facility operators keep written records of all maintenance work they perform. If necessary, these can be used to demonstrate in court that the operator acted in good faith in attempting to maintain his property. If a facility has a log chronicling regular inspections and repairs, this should be sufficient. Its equally important to keep records of repairs by others, especially manufacturer repairs. These may become relevant if an injury arises from equipment or systems with product defects.
Operators should put facility safety procedures in writing and maintain a log of when these are accomplished. This will constitute significant evidence of the care taken to avoid injuries and damages at the facility.
A Solid Lease Agreement
Self-storage operators should focus on the terms of their lease agreements with tenants. Based on the laws of many states, it may be possible and appropriate for an operator to limit his liability exposure to tenants based on the terms and conditions of the facilitys lease. These exculpatory provisions can address not only the risk of loss or damage to a tenants stored property, but the tenants risk of personal injury on the premises.
In some states, courts will simply disregard these provisions completely as being against public policy (meaning the courts find the effort of a business owner to have customers release any of their rights as unfair), while other courts have found that as long as the release provisions are clear in writing and noticeable by the customerlarge type and boldsuch provisions would be appropriate. Language addressing a tenants waiver of loss or damage to his stored property might read something like this:
The Owner is not a warehouseman engaged in the business of storing goods for hire, and no bailment is created by this Agreement. The Owner exercises neither care, custody, nor control over the Occupant's stored property. All property stored within the Space or on the Property by the Occupant or located at the facility by anyone shall be stored at the Occupant's sole risk and the Occupant must take whatever steps he deems necessary to safeguard such property. The Owner and the Owner's employees and agents shall not be responsible or liable for any loss of or damage to any personal property stored in the Space or on the Property resulting from or arising out of the Occupants use of the Space or the Property from any cause whatsoever, including but not limited to, theft, mysterious disappearance, mold, mildew, vandalism, fire, smoke, water, flood, hurricanes, rain, tornadoes, explosions, rodents, insects, Acts of God, or the active or passive acts or omissions or negligence of the Owner, the Owners agents or employees.
Provide Tenant Insurance
Facility operators can contractually seek to shift the risk of insurance to their tenants. As a general rule, self-storage facilities are not accountable for the care, custody or control of the property stored by tenants. If an operator requires tenants to obtain insurance, then the chance of a tenant filing a claim against the operator is decreased because the tenant is more likely to file a claim with his own insurance company.
In other words, by imposing an insurance obligation on tenants for the value of stored goods, if there is a loss or damage to the stored property, the tenant will be required to first recover compensation from his own carrier before seeking payment from the facility operator. Its generally recommended a provision be added in rental agreement to require tenants have insurance coverage for the replacement cost of 100 percent of the value of the property being stored. An example of such language is:
The Owner does not provide any type of insurance which would protect the Occupants personal property from loss by fire, theft, or any other type of casualty loss. It is the Occupants responsibility to obtain such insurance. The Occupant, at the Occupant's expense, shall secure his own insurance to protect himself and his property against all perils of whatever nature for 100% replacement of the stored property. Insurance on the Occupant's property is a material condition of this Agreement. Occupant shall make no claim whatsoever against the Owners insurance in the event of any loss.
Because theres the freedom to contract in leases, rental agreements with required insurance provisions are generally considered enforceable. A waiver of subrogation provision should also be included in the lease to limit the right of the insurance carrier to recover money against the self-storage operator for a covered loss. That provision might read:
The Occupant and its insurer agrees not to subrogate against the Owner in the event of loss or damage of any kind or from any cause.
Know Your States Lien Laws
Operators who plan to enforce their lien and selling rights must know their states self-storage lien laws. By following all the procedures and timelines in the law, they can protect themselves from liability. However, if a foreclosure sale is found to be invalid, an operator can be held liable for damages, which might include punitive damages if its found the operator ignored statutory guidelines.
Operators should first verify they have the most recent version of the lien law, as many states have recently updated their lien statutes. Once theyve reviewed their states lien law, they should seek legal advice for any questions or ambiguities they encounter.
Its clear the most significant financial liability a self-storage operator can face can arise from a wrongful sale claim from a tenant. Therefore, its essential operators obtain sufficient coverage for the risk of a sale through the purchase of sale and disposal coverage. This insurance will protect a self-storage operator not only from the value of a possible judgment, but the legal defense costs involved. Even if a foreclosure sale is handled in full compliance with the law, the coverage can protect an operator whos forced to defend a tenants frivolous action.
Scott Zucker is a partner in the law firm of Weissmann Zucker Euster, P.C., in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Zucker is a frequent lecturer at national conventions and the author of Legal Topics in Self Storage: A Sourcebook for Owners and Managers. To reach him, call 404.364.4626; e-mail scott@wzlegal.com.
