By Paul Kissel and Christopher Espinosa

NOTE: Legal information and citations contained in this article are based on California law.

As the self-storage industry continues to evolve and adapt through a world filled with frivolous lawsuits and spurious claims, it is critical that the industry focus on care, custody, and control to mitigate the inherent risks associated with operating self-storage facilities. A "self-service storage facility" is real property designed and used for the purpose of renting or leasing individual storage space to occupants who are to have access to the space for the purpose of storing and removing
personal property.

In the mid 1960s, Texas saw the first self-storage facilities as we know them today, and they have since spread like wildfire throughout the U.S., Canada, and the rest of the world. Today, self-storage has become a $15 billion industry with more than 50,000 facilities operating in the U.S. alone. Self-storage has evolved and matured as an industry largely due to the formation of the Self-Storage Association (SSA) in 1975. According to the association, the SSA began sponsoring state-level legislation and accomplished two basic objectives: (1) it specifically defined the self-storage facility and clarified that such a facility is not a warehouse and (2) it provided a specific procedure for dealing with the delinquent tenant's property, lending protection to tenant and facility operator alike. As the increasingly competitive nature of the business has yielded rapid growth and success, it has also complicated issues of care, custody, and control within the industry.

Unlike a "warehouseman," self-storage units are typically secured by a tenant’s own lock and key and thus are not accessible to facility operators. Self-storage statutes specifically provide that self-storage facilities are not warehouses and that operators of self-storage facilities do not maintain the ability to lock and unlock a tenant’s storage space. This helps avoid creating a bailment situation with increased risk of potential liability. Bailment occurs when a person deposits personal property with another under an agreement of a contract for a specific purpose.

By eliminating an operator’s access to a tenant’s storage space, the operator does not maintain care, custody, or control over the tenant’s possessions and thus, limits the operator’s liability. Once the storage facility takes possession of a tenant’s property, the legal relationship changes, the duty of care increases, and the facility is now responsible for the safety of the tenant’s property within.

The most common example is when a self-storage facility operator accepts packages or deliveries for their tenants, or where the operator agrees to hold or keep a key to a tenant’s storage space. In this situation, the operator of the self-storage facility arguably creates a bailment over everything stored in the tenant’s unit at all times. Generally, the bailee owes the bailor the duty to use reasonable care to safeguard the property; however, that standard of care will vary depending on who receives the benefit of the bailment. In most bailment situations in the self-storage industry, both the operator of the facility (bailee) and the tenant (bailor), mutually benefit from the relationship. The tenant benefits in having a storage facility for their "homeless" property, while the operator benefits in having increased their ability to control, care for, and maintain custody of products entering their storage facilities. A bailee has a greater degree of responsibility for safe-keeping.

Another easy, effective way to avoid creating a potentially dangerous bailee-bailor relationship is to insert language in the rental contract confirming that the self-storage facility is not a bailee of a tenant’s property and does not take care, custody, and control of a tenant’s goods. Additionally, self-storage operators should include an insurance provision within the plain language of the rental contract whereby obligating the tenant to obtain insurance to protect the tenant’s property. The benefit of affording a tenant the option of obtaining insurance, or requiring tenants to obtain insurance, is a reduction of the potential for the storage operator’s being a target source of recoupment when a loss occurs.

In California, a woman attempted to sue the defendant operator of a self-storage facility when someone broke into her "private" storage unit and stole everything within. The California Court of Appeals held that because the tenant was afforded the option by the defendant operator of greater monthly payments under the lease with insurance or of purchasing insurance elsewhere, and chose not to do so, the operator was not liable for the theft. [Cregg v. Ministor Ventures (1983), 148 Cal. App. 3d 1107, 1111]

The California Self-Service Storage Facility Act uses language of leasing, indicating that the California legislature contemplated that self-storage agreements may be leases, and thus, the Act permits rental agreements to be construed according to their plain language as leases, and should be construed to reflect the unambiguous intent of the parties. [Wattson Pac. Ventures v. Valley Fed. Sav. & Loan (1993), 2 F.3d 967]

As the self-storage operator’s care, custody, and control over their tenants' property decreases, so does the standard of care owed, and ultimately the operator’s liability. An exception to this general rule could potentially surface if the operator attempts to shield himself from all liability simply because of provisions within the language of the contract. A court will generally enforce contractual provisions relieving one of liability so long as the provisions in the contract do not run contrary to public interest. [Insurance Assoc. v. Parker (1951), 65 S.E. 2d. 341]

For instance, sometimes the operator of a self-storage facility creates or preserves a situation that puts tenants or their goods at risk. It seems unfair for a self-storage operator who takes no precautionary measures to deter crime through proper lighting and security measures to escape liability simply because of a provision inserted into the language of a contract. The court will typically find instances such as this inconsistent with public policy and, therefore, hold the contractual provision unenforceable.

The general rule is that a storage facility is not liable for the criminal acts of third parties except when the facility operator negligently contributes to the situation that put tenants or their goods at risk. A primary function of a self-storage operator is to make routine inspections, maintain proper lighting, and aggressively address everything with the decreased potential of a third party’s challenging the facilities security. Ignoring general security and access by outsiders welcomes an increased risk of criminal activity. From brewing methamphetamines to theft, self-storage operators everywhere should take preventive measures to ensure that the self-storage facility is not only safeguarded from these criminal acts but that the operators themselves are legally protected.

Criminal screening is a process whereby an operator can cross-reference applications against various databases and filter out applicants with criminal backgrounds ranging anywhere from sexual offenses to drug offenses to identity theft. Although applicant screening is discretionary, operators may want to consider implementing some form of a criminal screen. For instance, MiniCo offers Storage Screening, a background screening program, in partnership with TransUnion, a leading global information solutions company. The benefits are unparalleled. For a small fee, storage operators can run a report based on parameters given in advance.

The fact that the Storage Screening program requires applicants to sign a release before submitting to the screen not only legally protects the company, but acts as a filter in and of itself. Unlawful and high-risk applicants will be deterred by the mere presence of the capabilities self-storage operators have in ensuring applicants are legitimate, law abiding, and creditworthy. By utilizing a cost-effective, easy-to-use criminal screen, storage operators may be able to preemptively eliminate tenants who pose serious threats to other occupants and their goods. Before implementing such a screening process, operators should seek advice of counsel to avoid claims for discrimination, invasion of privacy, and the like.

Solutions
The key to lessening legal liability in the self-storage industry revolves around strict compliance with your state’s self-storage statutes. In California, the Self-Storage Facilities Act in the Business and Professional Code is the staple of the industry. These acts should be broken down, understood, and applied by a facility operator to protect the business from various legal liability issues surrounding the increasingly dynamic nature of the self-storage industry.

Of equal importance is creating a quality rental agreement containing strong language indicating that the self-storage facility is not a bailee of a tenant’s property; does not take care, custody, and control of a tenant’s goods; and that what is stored there is the business of the occupant only. Furthermore, the rental agreement should contain an insurance provision giving the tenant an opportunity to obtain insurance for the tenant’s contents. Strongly suggesting or making it mandatory that tenants obtain insurance on items severely limits the potential for lawsuits stemming not just from theft but other common areas of concern such as fire, flooding, or mold.

Conclusion
A facility operator always needs to avoid negligence by acting reasonably in the circumstances, which could include screening the tenant. The operator may reduce potential claims by a utilizing a clear contract identifying the relationships between the operator and tenant and encouraging tenant insurance; and by avoiding being in custody of the tenant’s possessions.

Paul Kissel is the managing partner of Borton Petrini, LLP, San Diego Office. He has been a member of the firm since 1985. Borton Petrini, LLP, (www.bortonpetrini.com) is a civil litigation firm with practice areas in insurance, business, corporate, employment, real estate, construction, estate planning, and others through 10 offices in California. Christopher Espinosa is a law clerk with Borton Petrini, LLP, and enrolled at Thomas Jefferson School of Law in San Diego. Contact Paul Kissel at 619-232-2424 or pkissel@bortonpetrini.com.