A self-storage lease agreement (or rental contract) is one of the most important elements of your self-storage operation’s risk management program. It is the most critical document executed between the business and the tenant in terms of protecting the facility’s interests. The lease agreement formally establishes the relationship between the facility and the tenant, and its wording is of the utmost importance.
Will an executed agreement prevent someone from filing a lawsuit or insurance claim against your insured? Probably not. However, a well-written contract that has been properly vetted by an attorney can go a long way toward mitigating the severity of the outcome of these types of actions. A poorly worded lease agreement or one that fails to include relevant clauses can have the opposite effect, leaving the business exposed to negative outcomes from liability claims. In fact, this is one of the most common challenges encountered by claims adjusters working with self-storage businesses.
The following are some key elements that should be included at a minimum.
• Tenant Insurance – Explains that the facility has no responsibility for insuring tenants’ stored items, explains any proof of insurance requirement, and references the facility’s tenant insurance program.
• Hold Harmless Agreement – States that the facility is not responsible for damage caused by the actions of the tenant or other tenants.
• Lien Sale Laws/Default and Remedies – References the state’s lien sale laws and asserts the facility’s right to seize and dispose of a tenant’s stored items in the event of default.
• Prohibition of Hazardous Materials Storage – Details the types of materials that are prohibited from being stored in a rented space.
• Prohibition/Limitation of Activities – Outlines specific prohibited activities including smoking in rented spaces, use of heating devices or open flame, performing vehicle repairs on premises, and residing in a rented space.
• Limitation of Value – Clearly states the maximum value of items stored in a rented space without prior approval.
The importance of including these items in a lease agreement cannot be overstated. It is critical that your self-storage clients’ lease agreements be reviewed by their insurance agent and attorney to avoid creating exposures that could leave the business vulnerable to costly insurance claims and lawsuits. Laws vary by state, and an attorney can ensure that the lease agreement complies with the current legislation in that state. Keep in mind that the state’s self-storage association may have lease agreement templates available to members that have been reviewed and approved by the association’s legal counsel.
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