California Law provides clear and beneficial lien enforcement rights to
self-service storage facilities, but to use these rights you must follow
the language of the Self-Service Storage Facilities Act specifically. It's
really not complicated and yet most of the legal questions from storage
operators come from lien sale problems. It is also the one area where facilities
frequently make errors that lead to litigation. Since most lien sale liability
arises out of faulty notice procedures, it can be avoided by careful adherence
to well designed operations procedures. More important is an operations
policy that puts the lien sale into the proper philosophical perspective.
The primary purpose of the actual lien sale is to clear an unproductive
unit so that it can be profitably rented. Many pre-sale procedures also
have the intended collections benefit of reminding a delinquent tenant of
the obligation and result in full payment of the account. By the time you
get to a sale, however, most sale proceeds do not cover outstanding costs.
This emphasizes that the main reason to hold the sale is to clear the unit
and return it to productivity. If you can adopt this as a fundamental principle,
you will be able to let go of some of the emotional baggage that often interferes
with conducting an orderly lien sale.
There are a number of notice problems that can lead to lien sale irregularities.
One of the most common is that the facility does not allow sufficient time
for the various pre-sale notices. Additional problems arise with the way
the notices are mailed or addressed. These are all problems which could
be avoided by having, and following, facility policies requiring correct
lien procedures. It is also important to conduct a pre-sale review of the
files of all units scheduled for sale. This review should be done by a supervisor,
or preferably by the facility owner. In any event the pre-sale review should
be done by someone other than the individual who performed the pre-lien
procedures so that you get a fresh set of eyes to look at the files.
It is all too easy to miscalculate the time required to complete the
pre-sale statutory requirements. Many of the new computer systems have calendaring
features, but even then practical matters sometimes prevent timely implementation,
so a review of each step is essential.
The timing works like this: The Self-Service Storage Facilities Act permits
the mailing of the Preliminary Lien Notice after 14 days of nonpayment for
charges due (B&P Code § 21703). That means that you can send your
Preliminary Lien Notices, by certified mail, on the fifteenth day after
rent was due. If the account remains unpaid by the date specified in your
Preliminary Lien Notice (which must be at least 14 days after the mailing
of the preliminary notice (B&P Code § 21705)), you can deny access
to the unit and send out a Notice of Lien Sale (again certified), stating
that unless full payment is received, the property will be sold to satisfy
the lien after a specified date (again, not less than 14 days after the
mailing of this notice). Following that 14 day period, and before conducting
the sale, you must advertise the sale in a newspaper of general circulation
at least once a week for two weeks consecutively (B&P Code § 21707
(a)). Arguably you could complete each step in the minimum time allowed.
However, proceeding on such a tight timetable would eventually guarantee
a mistake, and possibly litigation. It is not sound business practice to
cut these limits too close to the statutory minimums. As extra insurance,
leave a little "fudge time" for each step of the way.
Remember that each of these time periods runs from the completion of the
previous step. That means that any delay in completing one level of the
lien process must similarly delay each subsequent step. In your pre-sale
review process it isn't enough to check that you have a sufficient number
of total days, you must review each leg of the process to insure adequate
notice and waiting periods. Even in computer-driven operations delays often
occur somewhere in the process. For example, a critical certified mailing
date may fall on a weekend (or holiday) when the post office isn't open,
the manager's car battery may die the day of the post office run, someone
on staff may be out ill on a critical day, or the regular relief personnel
may not follow through on procedures. Especially in the storage industry,
where there is often minimal or relief staffing, it may be too busy on a
given day to rent and show units, collect payments, do computer entries,
do the computer "notices-run" (with the certified slips) and get
everything out and posted. If the notices are not actually mailed on the
day that they are prepared, you must be sure to add the extra time into
your computation. The obvious solution for the conscientious facility operator
is to build a little extra time into your onsite procedures and to always
have a second set of eyes review each step before the sale.
Many storage tenants make eleventh hour payments, even up to the moment
of auction. To prevent the misfortune of accepting payment in the office
at the same time that the hammer is falling out in the yard, develop a 'hot
list' for units scheduled for sale along with internal procedures that insure
that full payment will prevent the unit's sale. Some facility operators
are offended when tenants want to bid on their own units, possibly recovering
their property for less than the amount of the lien. If you remember the
reason for the lien sale remedy, this situation should not disturb you.
The purpose of the sale is to clear a nonproductive unit. If a tenant bids
the sale, it makes the sale more competitive, hopefully raising the ultimate
sale price on the space. Then the tenant cannot complain that the sale was
not reasonable! The inhibition against having a tenant bid the unit is often
an emotional hurdle because the facility personnel view the liened tenant
as a deadbeat. A change in philosophy can put this in a new perspective.
The law sets out the minimum procedures required to progress to lien sale.
Your facility should use the statutory requirements, combined with its own
onsite policies and procedures to develop a Pre-sale Checklist. In addition
to the statutory requirements, many facilities also send out reminder letters
and make telephone calls to delinquent tenants. These extra contacts enhance
your chances of pre-sale payment and add additional protection for the facility
in the event of a lien sale claim. They demonstrate that your facility made
every effort to alert the tenant to the impending lien sale. These efforts
take time however, and time is money. Make sure that your delinquency and
lien charges cover the actual costs of your normal lien efforts.
Remember that if a tenant sends you a Declaration in Opposition to Lien,
the clock stops and you cannot proceed to a lien sale. Once you have received
the declaration opposing the sale your remedy shifts to the courts. Proceed
promptly to enforce your rights, while you still have a valid address for
the tenant. In most jurisdictions you can resolve these cases in Small Claims
Court, but be prepared to educate the court about self-service storage law.
You can't get in trouble by moving too slowly in enforcing your lien rights. However, that does not mean that you should let things slide indefinitely on past due tenant accounts. This is one area where the nice guy really does finish last. Some facilities routinely let tenants go delinquent for months before even starting the process, accepting excuses and promises instead of monthly rental payments. This results in two negative consequences. First, as rents add up it becomes increasingly unlikely that you will be able to recoup your costs from the recovery. There is a second, more subtle drawback to delay. When a tenant has repeatedly gone into lien status and has made, and broken, every promise in the book, the site facility staff who deal with the delinquent tenant can become frustrated and callous to the ongoing excuses. It is easy to reach the point where facility staff take the ongoing delinquency as a personal affront. Once the staff is angry at the tenant, it becomes much more likely that mistakes will be made on that file during the lien process. Invariably when a sale and disposal case reaches litigation, interviews with the facility staff reveal a high level of animosity towards the tenant. There is a perception by the front office personnel that the tenant abused their patience and good graces. Once the situation is emotionally charged, it is difficult to be objective. The way to avoid the problem is to proceed to lien status in an orderly fashion on all delinquent accounts. No favors, no undue delays. This is especially true given the fact that the most persuasive collection device available to storage facilities is the pre-lien process.
Many storage operators want to know where they should send the required
notices. The answer is found explicitly in the code (B&P Code §§
21701(f), 21703, and 21705). Facilities must send the notices to the tenant's
last known address and to any alternate address provided by the tenant.
The law defines the last known address as "that address provided by
the occupant in the latest rental agreement, or the address provided by
the occupant in a subsequent written notice of a change of address."
Provided you mail to the address as listed on the contract (or to a change
of address given in writing) along with notices to any alternate, you will
have fulfilled the code requirements.
Address problems often originate with onsite policies rather than with any
interpretation of the law. In order to echo the language of the code, the
storage facility should have a strict policy, preferably contained in the
rental agreement, requiring that changes of address be in writing. Many
facilities go even further, requiring that the written change of address
be signed and dated by the tenant, and stating that the change is not effective
until it is received by the facility and a written receipt is issued for
it. Once you have a written change of address, put the original in the tenant's
file. Staple it to the face of the rental agreement, so that it can't be
missed in the lien process.
Improper handling of an address change can lead to defective lien sales.
Address information should never be taken over the telephone. A telephone
call does not produce the written document required by the code, so it is
not acceptable for use in sending lien notices. The proper written change
of address must be entered into the computer or documentary records, with
a notation of the date on which it was received. Occasionally a file will
have multiple written changes (often undated), which makes it impossible
to tell which is the operative address. When in doubt, the safest alternative
is to mail to all possible addresses, an expensive proposition if there
are several, since the notices must be sent by certified mail. Even if you
know that the tenant is not at the listed address, you must continue to
mail there until you get a written change of address. Often facility personnel
are frustrated by a morass of multiple addresses, but it doesn't help to
blame the tenant. Having, and adhering to a strict address-change policy
is essential to the smooth operation of your facility. The penalty for failing
to have one is the extra trouble and expense of multiple mailings for lien
procedures. Since failure to properly give lien notices to a tenant is one
of the primary causes of lien sale claims, part of your pre-sale review
process should include an examination of the addresses used on the contract,
any written address change in the file and on the notices sent. If you haven't
crossed your t's and dotted your i's, do not go forward with the sale. It
is cheaper in the long run to redo all of the pre-lien procedures, starting
over at the beginning, than to proceed to sale with a defective record.
The law requires that the lien sale be held in a commercially reasonable
manner (B&P Code § 21707(b)). There is no specific case law in
a self-service storage situation which defines the term "commercially
reasonable". However, analogous situations and plain common sense indicate
that a reasonable sale requires the lienholder to try to obtain the best
price possible for the liened property, within the context of a lien sale.
Factors to consider in determining if a sale is reasonable include whether
prospective buyers received notice of the event and whether the conduct
of the sale itself was conducive to maximizing returns. Most facilities
rely on auctions as the best way to establish that the sales occur under
competitive bidding. The higher the unit/return, the more it looks like
the storage facility was commercially reasonable in conducting the sale.
As a lienholder, your interest in the property is limited to the amount
of the lien, but the tenant has a legitimate interest in realizing the best
possible price on the unit. If you limit your sales efforts to satisfying
the debt owed to you, you are undermining the tenant's property rights to
any excess recovery. You could find yourself in court defending whether
your lien sale was commercially reasonable.
Although the law sets out the minimum standards for advertising and notice,
it is always in the interest of the storage facility to put in the extra
effort to encourage a good turnout to its lien sale auctions. It helps to
develop your own mailing list of prospective buyers, or get your facility
on one of the local or regional auction listings. If you know in advance
that a particular unit contains goods with value to a particular type of
buyer (maybe antique furniture, tools or other specialty items) you should
invite several dealers who handle those types of goods to your auction.
Again, common sense prevails here; if you wanted to sell some of your own
personal property, you'd make every effort, so long as it was cost effective,
to get a good price. Treat the lien sale with the same eye towards optimizing
sale results.
After the sale, keep your documentation showing all of your efforts by keeping
copies of the advertisements and invitations, and any log of relevant telephone
contacts. Keep records of the prospective buyers who attended by having
a sign-in sheet. You can then use the sign-in sheet for future lien sale
mailers. Every effort to make the auction a successful event serves to bolster
the commercial reasonableness of your enforcement proceedings. The overage
from any bid in excess of the lien must be held for the tenant for one year,
after which it must be turned over to the county. Some facilities request
that purchasers return personal papers or photographs, and restore them
to the tenant without charge. While not required by the law, this courtesy
can go a long way towards diffusing ill will after a lien sale. These items
generally have no value to a buyer and normally end up in your dumpster
anyway, so this goodwill gesture costs you next to nothing.
So long as you fulfill the requirements of the Self-Service Storage Facilities
Act your lien enforcement offers you full protection from tenant claims.
The lien program provides a cost efficient mechanism to keep your rental
properties productive and profitable. The costs for failure to comply can
be steep. An improper lien sale can constitute conversion, a common-law
form of theft.
Damages include full valuation of the 'converted' property as well as compensation
for the tenant's efforts to recover his goods. There are no effective liability
defenses to a conversion action if the facility does not follow the law.
You minimize your exposure by creating and using an effective Pre-sale Checklist
to keep your procedures within the law, and by reviewing those procedures
at each step of the process and then again prior to sale. If you remember
that the purpose of the lien sale is to free a nonproductive unit, you will
avoid the pitfalls of treating delinquent tenants like no-good deadbeats.
Sometimes the difference between litigating and not litigating is just a
question of customer relations.
Copyright © Alta V. Walters 1995
The Law Offices of Alta V. Walters
Phone (510) 834-8750
Fax (510) 380-5188
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