Marmor’s Rules
By Richard Marmor
AZSA Legal and Legislative
As I referenced Marmor’s “Third Rule of Self-Storage” at a recent Legal Q&A session, attendees asked what the 1st and 2nd rules are. Folks who have attended one of my “Lien Sales A to Z” seminars already know, but in the interest of my legacy, here are all of my “rules”... thus far.
Rule #1 – Self-storage auctions are not about money! They are about getting your unit back into production.
I find that owners and managers often become fixated on how much money they can recover in auctions. On the one hand, auctions rarely recover the entire claim (this owing largely to Rule #4). More importantly, if the amount of money you are recovering through auction is that important to your operation, you have a failure of management. Your receivables are too large.
Rule #2 – The FIRST step in the auction process is . . . cut the #%&$@ lock!
I shiver every time an operator says to me that they don’t like cutting locks until right before a sale. Their usual justification: they don’t want the exposure to liability. Guess what? They’re exposed to liability anyway, and if this is the kind of tenant who sues, they’re still going to get sued. Moreover, you need to know what you are dealing with.
What if the space is empty? Our auction process takes nearly two months – at minimum – to process. Waiting to cut the lock means two additional months without rent on that space.
What if the space contains a motor vehicle or boat? “Protected property”? Property subject to a lien? Each of those requires that the storage operator take special steps in the foreclosure process. The result will either mean pulling the unit from sale – and another two months’ of lost rent while you do the homework you should have done – or liability to someone if the property is sold then despite having not dotted all the i’s.
Rule #3 – You cannot give too much notice, but you can give too little.
Due process dictates that all parties in a dispute have adequate notice so they can appear and take appropriate steps to protect their interests. No judge will ever say to you, “You warned the tenants too many times or in too many ways that they were at risk of losing their property.” If a situation raises any question in your mind, you have answered it. Duplicate all notices to all names and/or addresses you have for the tenants. When in doubt, send it out!
Rule #4 – Tenants store junk, but they lose treasures.
“That pink, plastic coat hanger has been in our family for generations. It was the only thing of my great grandmother’s that we still had...” This rule is largely self-explanatory. Moral of the story: take lots of pictures. This is also justification for Rule #7.
Rule #5 – Lienholders are like a gift from God.
I’ve had managers call me, frustrated and upset that they have discovered that they have to deal with a prior lienholder. They should be rejoicing. Consider: when a tenant stores property, it’s because that person sees enough value in the property to merit paying you rent every month to store it. Now, for whatever reason, that tenant no longer is paying you. With a lienholder, you not only have another party who also values the property, but being a bank or finance company, they have money! You might not have to auction the property at all in order to get paid.
Rule #6 – You’re a fool if you hold auctions without the protections of AZSA’s “Auction Sale Contract.”
This contract form is meant to be signed by buyers at your auctions as a condition of being permitted to bid. Every paragraph in it is designed to protect you by either limiting your liability in various circumstances, or by giving you necessary rights when buyers don’t behave. If you’re not using this cheap-to-buy form at your auctions, you deserve any grief your auctions cause for you.
Rule #7 – Avoid an auction whenever you can. Accept 50¢ on the dollar to settle with your defaulting tenant.
First, auctions represent the number one source of liability exposure in self-storage. If you can avoid the risk, so much the better. Besides, 50% is probably as good as you could hope for in most auctions anyway. And finally, don’t get hung up over a few hundred dollars from your auction (see Rule #1). Accept half and the immediate vacating of the tenant, and you’re in the same place you would have ended up by auctioning, but without the exposure to liability.
Self-storage operators are surprisingly creative in the situations you present from your operations. This undoubtedly means additional rules in the future. If so, you’ll be the first to know.
[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