Self-storage operators deal with many legal issues, such as conducting lien sales, updating rental agreements and firing employees. The last thing an operator wants is to end up in the middle of a costly, time-consuming lawsuit. So when should an operator hire an attorney?
Experts suggest six instances when it’s smart to consult with an attorney.
1. Buying or building a storage facility
You shouldn’t buy or build a facility and form an operating entity (such as an LLC) without an attorney, said Jeffrey Greenberger, an attorney in Cincinnati, OH, who practices self-storage law.
“When you’re talking about a $1 million facility, that’s not a time when you want to buy a $29 LLC from the office supply store,” Greenberger said.
While a self-storage attorney is not required, Greenberger said, it can help when buying a facility, since self-storage real estate has its own wrinkles.
For example, when you buy an apartment building, you walk through all of the units to check their condition, Greenberger said. But in self-storage, you don’t typically enter units, which means there are many “mystery meat” units, he said. The units may or may not have rental agreements. They may or may not be occupied. They may or may not be abandoned.
“You need special clauses in your purchase contract if you want to do it correctly to make sure you have a very good understanding of what these ‘mystery meat’ units are,” Greenberger said. “You may even require that the old owner consult with you after the purchase to help you.”
2. Selling a self-storage facility
“You need a good real estate attorney watching your backside in case there becomes an issue,” said Andrew Kelly, principal of Tucson, AZ-based Sierra Self Storage Consulting. “And generally, most banks want an attorney looking over the agreements.”
3. Writing a rental agreement
“It’s the one thing that you definitely don’t want to do yourself,” said Greenberger, who strongly recommends hiring a self-storage attorney for this task.
Why? Because self-storage involves rights of entry, value limits for stored property and other sticky matters.
“If you go to three self-storage facilities and take what you like out of their rental agreements, paste them together and create your own kind of bootleg rental agreement, you kind of get what you pay for,” Greenberger said.
These rental agreements often don’t cover what they need to cover, he said, and what they do cover can be repetitive and ambiguous. Think of your rental agreement as protection for your facility, Greenberger said.
Once you have a rental agreement that a self-storage attorney has approved, it’s unlikely that you’re going to need to make major revisions unless state laws are updated or a big legal case forces changes, Greenberger said.
“We tell people that once it’s professionally done, unless there’s a statute change or a big case or lawsuit pending, you probably need to update once every four or five years,” he said.
Kelly said people sometimes buy a facility and unwisely use the existing rental agreement.
“It could be antiquated,” Kelly said. “You always want an attorney to review your lease. In the world of law, you can get your pants sued off because you didn’t understand everything when you were trying to draft your lease. I know there are people out there who do it, but I tell them, ‘You’re a fool’.”
4. Complying with your state’s lien laws
Self-storage lien sales are a big part of operating a facility. However, a sale that doesn’t strictly follow your state’s lien laws could lead to major legal battles. Lien laws vary from state to state. To learn about the lien laws in your state, visit the Self Storage Association website.
“If you have any questions on your state’s auction procedures at all, you should get input from a self-storage attorney before scheduling your auctions, as this is one of the areas that has the highest potential for a problem or lawsuit if the laws are not followed precisely,” said Marc Goodin, president of Fort Lauderdale, FL-based Storage Authority Franchising.
Your state’s self-storage organization usually can recommend a good attorney, he said.
5. Coping with employment issues
“Never mess around with employment-law issues,” Greenberger said. “If you have employees, you need to make sure you’re doing things right.”
That includes having employees read and sign an employee handbook covering policies like sexual harassment, discrimination, time off, pay and benefits. Also, take into consideration that facilities with live-in employees are subject to wage-and-hour laws.
Sue Haviland, a partner at consulting firm Self Storage 101, agrees that these precautions are necessary: “If you’re a small operator and don’t do a lot of terminations and aren’t real up to date on labor laws, it’s not a bad idea to have an HR attorney on speed dial.”
6. Dealing with tenants who file for bankruptcy
If you receive a notice about a tenant filing bankruptcy or you’ve simply heard about a tenant bankruptcy, consult with an attorney, Greenberger said.
“Bankruptcy is the ‘Alice in Wonderland’ of law,” he said. “Whatever you see and think would be right, the opposite is going to be true. Bankruptcy protects debtors—not creditors—and often you’re the creditor in this situation. Whatever you would think you would be allowed to do, you’re probably not.”