By Scott Zucker

One of the real questions that self-storage operators regularly face is whether they are emotionally ready to sell a tenant’s property because the rent hasn’t been paid. Certainly, the operators that are experiencing greater delinquencies at their facilities in recent months are coping with this issue more and more. These operators understand their statutory and legal rights to sell a tenant’s property, but must face the pleas and promises of their tenants who are seeking “one more month” or “one more chance” to pay to avoid the loss of their possessions. The answer for many operators has been to delay sending lien notices, waiting to publish ads or foregoing their auctions altogether, hoping that their tenants can cure their debts and avoid the impending foreclosures. But these actions have unintended consequences which may affect the operator’s overall lien rights. As such, it is important for operators to understand the legal ramifications of delaying their lien rights.

Typically, under most state self-storage statutes, after a tenant has failed to pay for an entire month’s period, the lease is considered in default and the facility’s lien rights are triggered, enabling a facility operator to start the lien foreclosure process by sending a certified letter notifying the tenant that his property will be sold if the rent is not paid within a certain cure period. If a facility operator chooses to delay sending the lien foreclosure letter, or sends the letter but delays publishing the ad, or publishes the ad but delays holding the sale, a possible precedent is set in the eyes of the tenant. The tenant now believes (or may argue that he believes) that the operator has created a new timeline for the lien process. Accordingly, if the tenant cures the default in one month, the next time the lease goes into default, the tenant can arguably rely on the operator’s previous lien timeline before he seeks to cure the default.

So, for example, if the operator schedules a sale but then doesn’t go through with it, the tenant can argue the next time that he didn’t pay before the scheduled sale because he believed, based on past actions, that the operator would not actually sell the property.

Although this type of argument may not always prevail, operators must realize that, if they deviate from their regular default and lien procedure, before they go back to their earlier process they must notify the tenant in writing that notwithstanding any previous allowances that the operator may have given that, going forward, the landlord will “strictly enforce” its rights under the lease and law. Any waiver argument asserted by tenants can be removed by the sending of this type of “clear the decks” letter. This kind of letter is also important if an operator chooses to waive late fees for certain months and then decides to start enforcing the late charges. A tenant who is not given notice of the new enforcement of late fees may claim that the operator otherwise waived its right to seek payment of the late fees due to their previous actions.

It is also true in certain states that a facility operator is barred from seeking more than a certain number of delinquent months as part of its lien sale. In other words, if an operator chooses to delay the sale a number of months to allow the tenant to get caught up to pay, that operator will lose the right to claim some of the additional months that it patiently waited for the tenant to pay. For some states, that cap is four months. So, in those states, any rent not paid after the fourth month will be uncollectable as part of the lien sale. This type of statute provides some guidance for other states as well that it may not be appropriate for an operator to simply delay its enforcement for an indefinite period of time in order to build up a large debt against its tenant.

It is important that if the operator chooses to start the process and then stops, that the operator complies with the requirements of its particular state lien law once it decides to proceed again. Some states will only require that the ads be published again with the new sale date. Other lien statutes will require that another certified lien letter be sent. Typically it will depend on whether the date, time and place of the sale need to be referenced in the original lien notice. If it does not, then the facility may simply be required to re-publish new ads.

Other than the potential waiver claims that could be made by the tenant or the statutory limitations on claims that may be contained within the operator’s specific state lien law, there is nothing in the law which provides that if an operator waits to process its lien rights that the lien rights, as a whole, are lost. In other words, assuming that the operator decides to wait to sell a tenant’s property and assuming that the operator has given notice to the tenant that they intend to proceed with the sale and recognizing that the operator may be limited in the number of unpaid rental months that can be claimed as part of the sale, an extended delay in holding the sale does not impact the operator’s rights to ultimately enforce its lien on the tenant’s stored property.

So let’s look at a scenario where the tenant is unable to pay. The first suggestion when a tenant approaches an operator with an inability to pay is to arrange for the tenant to move out so as to avoid a growing debt. It may be that the operator simply allows the move out and records the non-payment as a debt to be recovered later or negotiates a settlement to take less in exchange for the move out. It may be that the tenant recognizes that he does not want the stored goods (or most of the goods) and agrees to abandon the property to the facility (in writing). Either way, the move out or abandonment creates a resolution for the operator and avoids the entire ordeal of enforcing the lien sale. Absent a voluntary move out, written abandonment or other effort at cooperation by the tenant, it is recommended that the operator proceed with its standard timeline for sending its lien notices (for example, if the operator typically sends out the notice on the first of the month, send the notice at that time). If the operator chooses to later delay the process for a particular tenant (or all the tenants) then the landlord should send a subsequent letter (which does not need to be certified) clarifying that although the facility chose to delay the lien process for the proceeding month, given that the tenant has not paid the rent or made other arrangements, the facility will proceed to follow the statutory right to proceed with the lien process and foreclosure auction.

A facility operator should not continue to delay the lien process with an uncooperative tenant simply because it is uncomfortable holding a lien sale. It is true that the lien sale is the remedy of last resort for a facility operator. But, eventually, notwithstanding all of the best efforts by the operator, sometimes the lien sale is inevitable. When it comes to that, the facility operator must be sure that it understands the law and that it complies with the requirements of the lien process. Failing to act is just not good business.

Scott  Zucker is a partner in the law firm of  Weissmann Zucker Euster P.C. in Atlanta, Ga. Scott specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Scott is a frequent lecturer at national conventions and is the author of Legal Topics in Self Storage: A Sourcebook for Owners and Managers. He is also a partner in the Self Storage Legal Network, a subscription-based legal service for self-storage owners and managers. Scott can be reached at 404-364-4626 or at scott@wzlegal.com.