Foreclosure: You May Have No Right to Auction!

By Richard Marmor
AZSA Legal and Legislative Committee Chair

Let’s start with the obvious. Suppose that while preparing to auction a defaulting unit you only send the first required letter by verified mail and fail to send out the second letter by conventional first-class mail. We all know – or should know – the ramifications of that. Having not met the statutory requirements to foreclose your storage lien, you would not then have the right to sell. Were you to hold the sale anyway, you would be liable to the tenant for the value of the lost property.

There is an underlying concept in the example that we need to focus on. It is the presumption that you had a storage lien to foreclose in the first place.

It is true that our storage lien attaches, i.e., comes into being as a matter of law. You probably understand that that happens automatically when the tenant defaults in the payment of rent. There is more to it, however. 

The statute that creates our lien spells out all of the conditions that must be met for that lien to come into being. For example, the lien granted by the law is on all the personal property stored in the “leased space.” The statute defines leased space as the storage space rented to an occupant pursuant to a “rental agreement.” Rental agreement, in turn, is defined as any written agreement that establishes the terms and conditions of use of the leased space. In other words, if you do not have a written lease with the tenant, you have no lien to foreclose. I have had operators call me with situations in which either they rented space without use of a lease, or cannot find any written lease; so it does happen.

There are more conditions. Not only must you have a written lease, that lease has to have certain features within it. There are, for example, four warnings that have to appear in every lease, in brief: 

• That a lien will accrue if the rent is unpaid,
• That contents may be sold or otherwise disposed of if there’s a default,
• That insurance is the tenant’s responsibility, and
• That late fees may be charged (and when).

I know from reading many of your leases that some of you only have three of the warnings. I’ve even seen member leases that have none of the warnings! What’s more, it’s not enough that the four warnings be there, they must appear in bold type at least 10-point in size or larger.

Leases must also have a place for tenants to disclose the existence of lienholders and another place for them to disclose whether or not protected property will be stored in the unit. Although the law does not require it, it’s not a bad idea to also provide a place for the tenant to disclose whether or not (s)he is in the military.

So what happens if any of those elements are missing from your lease? There is still a lease, of course, but having not met the conditions, no lien arises if the tenant defaults. Without a lien, there is nothing to foreclose. In other words, if your lease is missing any of those elements, you have no right to auction a delinquent tenant’s contents.

In that situation, if you go ahead and hold a sale anyway, you can be sued by the tenant for the full value of the lost property, exactly the same situation as if you had held a sale without following all the rules, like failing to send out the right number of letters.

If your lease is defective, then what can you do about a delinquent tenant? Legally, you only have only one option, go to court and seek an eviction order.

I would be remiss if I failed to note that the AZSA standardized lease contains all of the statutorily required bits and pieces – and then some – so provided they follow the rules, users of the AZSA lease are assured of having their lien rights.

If your lease is deficient, you must remedy the situation. I can tell you that the cheapest, fastest and simplest way to do that is to switch to using the AZSA lease. Converting your tenants over to it is very easy, too. They don’t have to sign anything nor even come into the office. Call us and we can show you how.

[This article deals with a law related subject at a general level and is not intended for you to rely on. You should consult a lawyer before making a final decision in a situation involving any legal issues.] 

Richard Marmor, Esq. is a self-storage consultant, facility owner and former facility operator in the Phoenix area.  He is also the founding President and current member of the Board of Directors of the Arizona Self-Storage Association, serving as Chair of the Legal and Legislative Committee. 

Source: Behind Closed Doors, AZSA Newsletter Archives