A$3.7 million wrongful sale verdict in California in 2007 may be the cause of nightmares for self-storage owners and managers who make the decision to put up a delinquent tenant’s property for lien sale. The lawsuit was lodged after the tenant came back from overseas service to discover that the operator had sold all her worldly goods at an auction. The problem was that she had pre-paid a year’s rent before going abroad. Therefore, the unit was never delinquent.

When making the decision to conduct a lien sale on a tenant’s unit, don’t overlook the obvious. “Number one, make sure the tenant is really in default,” says Jeffrey Greenberger, a partner in the Cincinnati law firm of Katz, Greenberger & Norton.

Unfortunately, unlawful auctions are frequent in the self-storage business. This is sometimes caused by a lack of “institutional memory.” Greenberger recalls a client who had a tenant storing a vehicle over a 10-year period. Sometime after the first two years, the tenant moved the vehicle to a different unit and the move was not recorded properly in the office. When a new manager took over the operation years later, he discovered that no rental rates had been applied to the second unit, which appeared to be in arrears. Instead of investigating the issue thoroughly, the manager put the vehicle up for auction. It turned out to be an expensive custom vehicle, and the facility was held liable.

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