It’s an unfortunate reality: With increased awareness comes increased exposure to possible litigation. The same holds true for the maturing self-storage industry. While the somewhat recent attention to the asset class has boded well for the majority of storage businesses across the country in the form of improved growth of portfolios and valuation, legal issues have increased as well.
As a matter of fact, according to Tim Dietz, president and CEO of the Self Storage Association (SSA), the industry’s “tremendous growth” and increased visibility have been factors involved in litigious situations, including several class-action lawsuits for some larger self-storage operators—a practically unheard of occurrence merely a decade ago.
“If there are any lessons to be learned from the challenges that other industries have faced as they have emerged in the public eye, it’s that legal patterns can accelerate dramatically,” says Dietz. “To use a cliché, we are not under the radar anymore. As we approach 50,000 facilities in the next few years, we will see more characters trying to take advantage of our hard-earned success for their own questionable intentions.”
Litigious Times
Dietz, who joined the SSA in 2004 and led lobbying efforts with a national scope for the association until his promotion to COO last year, states that the increase in tenants, contracts, and money are contributing to the uptick in lawsuits. “A lot of tenants, a lot of contracts, and a lot of money equal a lot of lawyers,” he says. “Contracts are seen as opportunities. In some cases, all it takes is an aggrieved customer and opportunistic lawyer who might see something in a contract that they believe runs afoul of statute for a seemingly minor situation to develop into a much larger class lawsuit.”
That’s the main reason why having up-to-date and attorney-approved contracts is more important than ever before. And Dietz goes on to say that once a contractual item is recognized as a problem, the exposure is great, especially for class-action lawsuits against larger companies in particular. For example, in New Jersey a previously little-known law called the Truth in Consumer Contract & Warranty Act (TCCWNA) has been the basis of pending class-action suits involving all of the self-storage REITs, as well as businesses from other sectors that depend on many contracts such as automobile dealers.
“There are contractual provisions that are common throughout the self-storage industry which have caused issues specifically in New Jersey because the language within this TCCWNA statute is ambiguous, providing an opportunity for attorneys to take advantage of the situation,” he says. “Literally any element within a contract that has been signed by a customer, which can be construed as unclear, can be grounds for a violation subject to a $100 fine per provision. But the law itself does not define what constitutes an unclear provision.”
Dietz adds that there are also plenty of “legislative wild cards” across the country that require attention and action. As examples, Dietz mentions unforeseen threats that have arisen: a Pennsylvania legislature (and auctioneer) who has proposed a bill that would require storage operators to use licensed auctioneers for lien sales and a New York senator who is attempting to add additional tenant default notices to the lien sale process to satisfy his own apprehension and confusion about self-storage auctions. Also in New York City, misconceptions about the self-storage industry have led to a proposed moratorium on new storage development in certain parts of the city.
“When you have the mayor of the largest city in the country creating impediments to our entrepreneurs meeting demand, when you have lawyers claiming to represent thousands of (not necessarily) aggrieved consumers, when you have governments at all levels thirsty for revenue, we have to recognize that our businesses are targets,” says Dietz.
Collective Benefits
With all of this potential for litigation nowadays, what are self-storage operators to do? First and foremost, Dietz states that the industry as a whole must keep “outsiders” from influencing the laws that govern the sector. “We are not a quaint little industry right now, and we can’t act like a quaint little organization.”
In view of that, the Self Storage Association is preparing to position the industry to avoid legal issues. Although the association cannot provide legal representation to its members on an individual basis, it can provide useful information and influence change legislatively. And it’s doing that through lobbying efforts and more readily available resources.
For starters, in February, Scott Zucker, a partner with the Atlanta, Ga.-based law firm of Weissmann, Zucker, Euster, Morochnik P.C., joined the SSA’s legal and legislative department as deputy general counsel. Working with Carlos Kaslow, esq., general counsel of the SSA, the addition of Zucker enables the SSA to cover both coasts of the U.S. In addition, they answer the questions that operators submit through the SSA’s Self Storage Legal Network (SSLN), a subscription-based service that provides legal and operations information on an industry-wide platform.
“Along with our General Counsel Carlos Kaslow, who has been involved in legal and legislative matters within the industry for more than 30 years, we feel that by adding Scott to our team we will be able to prepare and adjust with tremendous effectiveness,” says Dietz, who adds that the association’s departmental changes will help the industry better prepare for unforeseen occurrences as well. Dietz has combined his legal and legislative team into a united legal and legislative department.
The Self Storage Association continues to offer the Self Storage Legal Review, a bi-monthly publication that provides timely information on legal developments within the industry, as a direct member benefit, and other legislative publications such as annotated Lien Law books that help explain the laws in 29 states. Current self-storage legal information is also frequently disseminated through the association’s webinars, courses, and conferences.
Moreover, the SSA provides its members with a collective approach toward legislative change. “Some advancements can only be achieved by working together. The collective weight of the participants makes a difference,” says Dietz. “Our job is to assist businesses and help the industry protect itself.”
And a good portion of the association’s lobbying assistance is monetary. According to its website, www.selfstorage.org, “Over the past decade, SSA has spent more than $4 million influencing over 60 relevant laws, including specialty licenses for the offering of tenant insurance, authorizing reasonable late fees, dealing with abandoned records and vehicles, and fighting the imposition of sales taxes on self-storage rents in a dozen other states.”
Plan To Protect
However, despite the SSA’s copious legal triumphs, there’s always room for improvement. “Our industry is always evolving and essentially is a living document which is always being adjusted,” says Dietz. “And you never know what will come along in five or 10 years. The types of provisions being pursued will change.”
With that in mind, Dietz reminds self-storage owners and operators that staying on top of industry trends is vital. “Be active in both your state and national associations,” he says. “Your membership and participation can help the sector be prepared for unforeseen disruptions.”
Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, and Self-Storage Canada.