A discussion of Bailments

November 21, 2011 § Leave a comment

In a prior post, I mentioned that the self storage industry arose out of a desire to permit someone to store property without creating a bailment. It occurred to me that many readers may not know what a bailment is.

A bailment is a relationship of trust created at common law where a person (the bailor) gives possession, but not ownership, of goods to another (the bailee) to hold for safekeeping. Think of valet parking or leaving a watch to be repaired or checking your coat at a restaurant. In each case, you entrust your property to another for safekeeping and safe return upon request. Prior to the 1960’s, this was what a warehouse was. A traditional warehouse still is today.

Self storage is different. In this case, a lessor-lessee relationship is created, not a bailment. Your tenant rents a unit,stores property and locks the space. The owner does not take possession of the goods and no liability is created. Care, custody and control remains with the customer.

This simple difference is the cornerstone of self storage.

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Less Stress, More Money in Self Storage, Part 5

November 16, 2011 § Leave a comment

Whenever a new business is created, the form (or entity) that the business will take is discussed. Should it be a sole proprietorship vs. a corporation vs. a partnership vs. a limited liability company and so on. Typically, a Subchapter S corporation or a limited partnership or an LLC is chosen as the entity of choice. Why? Because they limit the true owner’s liability to third parties (as well has having certain tax advantages, too).

As a result of this decision, an attorney will be hired to create this new business entity and great care will be taken to set it up correctly. Dotting each “i” and crossing each “t”, so to speak.

However, this is not the end of the story. Each type of business entity has ongoing requirements that are necessary to keep it in existence and to keep it viable. Fees must be paid and forms must be filed. In the case of some entities, such as sub-S corporations, annual meetings need to be held and recorded.

What happens far too often, however, is that the business opens its doors, customers flow in and these ongoing niceties are forgotten. Then the unthinkable happens. Someone makes a mistake and a lawsuit commences. The owner leans back and says, “No worries, I have protection from personal liability because I put the business in a _______ “.

Unfortunately, good plaintiffs’ attorneys will oftentimes look to see if the corporation or the LLC has been kept in good working order. Have the fees been paid; the forms been filed. Has the owner been sloppy. If so, an argument can be made that the business entity is really a fraud and that the court should “look behind it” to see the real owner, i.e. you. All oof your good efforts to avoid liability have been wasted.

The advice here is to either task yourself or someone on your staff to be sure these details are followed. All of the time and to the letter. To make sure that annual fees are paid to the state and annual reports are filed. To make sure that the Board of Directors meets when and if they are required by law. That the “corporate book” is maintained.

Ongoing maintenance of these records will mean less stress and less stress means more money in self storage.

Less Stress, More Money in Self Storage, Part 4

November 12, 2011 § Leave a comment

Remember the old adage “You catch more flies with honey than you do with vinegar”? It is just as true today and it certainly applies to self storage. You will be more successful in your business if you and your staff engage with your customers in an open and friendly way. Get to know them. Build mutual trust. Be fair and honest.

Too often these simple concepts are ignored today. The human element is forgotten. We are comfortable sitting in the office in front of a computer screen. Get out and in front of your customer. Inter-relate with them.

Convenience aside, would you rather give your bank deposit to a human teller or an ATM? Which one is going to work better in developing a reservoir of good feelings and trust? In a later post, I am going to discuss the power of using a simple self storage agreement to develop better understanding between owner and customer. That is just another part of an open relationship.

Ancillary to this idea of openness is that of fairness. State plainly your what you promise and follow through. Studies show that a satisfied customer will convey that feeling about you to three friends; an unhappy customer to TEN!

Friendly and fair means less stress, more money in self storage.

Less Stress, More Money in Self Storage, Part 3

November 4, 2011 § Leave a comment

Generally, most would agree that education is a good thing. I believe this to be very true when it comes to self storage.

While to many self storage may appear to be a simple business, it is actually very complex. To make it work without overwhelming stress can be very difficult.

Continuing education, both for operators and their staff, creates knowledge. In turn, this knowledge creates certainty in your operations. Certainty, in turn, reduces stress. (Just ask anyone on Wall Street and they will tell you that markets thrive on certainty).

Therefore, I recommend that operators engage in a systematic program of educating themselves and their employees. Operations, marketing, general business practices, sales, technology, finance, the characteristics of your market — these are all fruitful areas for continuing education. Technology is a very important area because it changes so quickly nowadays — and it has such an impact upon so many facets of your business.

One area, I believe, deserves particular focus. Unfortunately, it is an area that is often overlooked. This involves the state laws that govern the way that self storage acts in the marketplace.

As I will discuss in a later post, self storage, through its lien laws, has been given a gift. Unlike a traditional landlord who has to go to court to evict a tenant, self storage operators have been blessed with non-judicial enforcement of their self storage liens. You can lock out a tenant for non-payment of rent and sell their goods at auction without having to go to court. Less time, less money, less stress. But operators need to be intimately familiar with the way this process works.

To do this, I recommend that every operator obtain a current copy of their state’s lien law, including any special regulations, such as those pertaining to motor vehicles and boats. Study these laws. Learn how the process works. Commit them to memory. If you cannot figure it out, consult with your local attorney until you understand it.

Then, pass along this information to your staff. They are the ones who will be using it on a daily basis. If you are comfortable that they know what they can do, and not do, that will save headaches later. Less headaches means less stress and more money.

Less Stress, More Money in Self Storage, Part 2

November 2, 2011 § Leave a comment

This part may be obvious to many but it is important to revisit from time to time: observe and be vigilant. Know what is going on at your site(s). Be aware. Ask questions. Do not take anything for granted. Do not be afraid to step in sooner, rather than later.

Recently, I became aware of a facility embroiled in legal trouble. They had hired a contractor to replace the site’s roof, The contractor, in turn, hired a subcontractor to do the actual work. The subcontractor placed the roofing material on pallets near the property’s fence. Unnoticed, a piece of the roofing material protruded through the fence into the public sidewalk. A bicyclist traveling on the sidewalk ran into the piece of siding, fell off the bike and was injured. Now, the bicyclist is suing. Is there enough insurance? Hope so. Could this have been avoided? Maybe.

While it is not possible to know exactly what the facility staff was doing that day, one could guess that they were not closely observing what the subcontractor was doing. Had they done so, perhaps the material sticking through the fence could have been moved and the accident avoided.

The point of this is that both owners and managers need to observe what is going on at their facilities and on the lookout for all sorts of problems like the one above.

Consider the longstanding issue of whether or not to have a tenant provide an inventory of property being stored in their unit. Many experts would say “no”, because this might come to bear on issues related to Part 1 discussed in an earlier post (non-bailee status). At the same time, it is completely appropriate for the manager to keep an eye on what a tenant is storing as the goods are being unloaded into the unit. Perhaps, dealing with a large 55 gallon drum of green goo” after the fact can be avoided. 🙂

In a similar vein, how many times has a facility owner discovered financial malfeasance by an employee after the fact? This type of problem could be avoided by being observant and vigilant.

The central theme: owners need to be vigilant of their staff (and facility); managers need to be observant of the goings-on at their site. Know who your tenants are. Know what their issues are.

Being on top of things now will make life much less stressful later.

Less Stress, More Money in Self Storage, Part 1

October 31, 2011 § Leave a comment

Recently, I announced that I would provide a ten-part low-tech plan to reduce stress as a self storage operator, resulting in increased satisfaction and, hopefully, more money.

Here goes with Part 1: Protect Your Status as a Non-bailee.

As recently as 40 years ago, consumers wishing to store goods offsite did so at a warehouse. The customer turned their goods over to the latter’s custody. They were stored under the care, custody and control of the warehouse. If the goods were lost or damaged, the liability lay with the warehouse. i.e. a bailment.

The self storage industry was founded from a basic desire to provide an alternative where the liability for the goods remained with the tenant, so to speak, not the warehouse operator. Thus, self storage was born. Rather than turn care, custody and control of the goods to the warehouse, the tenant remained in control. He or she placed a lock on the storage unit and retained the key.

A good way to understand the difference is to consider valet parking, where you leave your car and keys with the attendant versus self storage. If the attendant damages your car, they pay; if your tenant has damage to their property, hopefully, you do not pay.

Therefore, Rule 1: Protect your status as a non-bailee. How?

First, be sure that this idea is clearly set out in your rental agreement. State that no bailment is created and that the care, custody and control of the stored goods always remains solely with the tenant.

Second, do not engage in behavior that would re-establish a bailment after the fact. For example, limit your ability to enter the unit without permission to real emergencies. If you want to enter to perform routine maintenance, get permission first. Do not accept deliveries for tenants and volunteer to place them in the unit. Develop a separate delivery authorization agreement that re-states your non-bailee status and set up a holding area for deliveries where tenants can collect them and place them after-the-fact in their units themselves.

Third, be sure that in the case of delinquent tenants, you do not risk your non-bailee status until the lien process is complete and you have authority under state law to enter the unit and dispose of the property via auction.

Question: do over-locks jeorpardize your non-bailee status? My opinion is that they do not because only a stalemate is created. Your access is no better than the tenant’s at this stage. Your tenant my be denied access, but you do not gain anything new. Their lock still protects their property.

Your status as a non-bailee is a crucial part of your self storage business. Protect it; don’t overlook it.

Oops

October 29, 2011 § Leave a comment

I guess I am still learning, because my hyperlink did not work.

Go to pbsmartessentials.com and search for the article in Most Popular.

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