The Unique Problems of Self-Storage Rental Units

Storage UnitsSelf-storage rental units are a unique class of property, presenting both lessors and lessees with issues requiring legal assistance.  The industry’s publication “Inside Self-Storage” recently identified three specific areas of possible litigation involving commercial self-storage rental units.  These three areas should be high on the list critical issues for both lessors and lessees when negotiating commercial storage leases.

Lien Sales

California Business and Professions Code 21700-21716, known as “California Self-Service Storage Facility Act” governs several aspects of the regulations surrounding enforcement of self-storage facility lease provisions. The Act includes provisions making it somewhat easier for storage facility operators to communicate lien notices and advertisements of lien sales. However, these eased restrictions come with some notable requirements. For example, operators using email to send notices should obtain delivery verification. If operators advertise lien sales online they should be able to demonstrate that the sale was commercially reasonable. If operators tow vehicles they must use licensed towing operators.

Another provision that has a large effect on enforcing the lease contract is a statement that the unit lease contract must contain two things: (1) language indicating the property stored within will be subject to a claim of lien and can be sold to satisfy that lien if rental charges remain unpaid for 14 consecutive days; and (2) a designated space for the occupant to provide an alternative address for delivery of lien notices.  If the occupant does not supply an alternative address, there is no burden on the lessor, but the space must still be provided. Failure to include language addressing these issues in a storage rental contract creates an unnecessary risk that any future litigation against the operator will be successful.

Class Action Lawsuits

Storage facility operators have faced an increase in class action lawsuits brought for a variety of reasons.  Storage facilities typically serve a large number of tenants, all of whom operate under the same contracts, pay the same fees, and have the same lien procedures.  This means there is a self-created class for any claim brought against a storage operator, opening the door to class lawsuits for any of a number of issues.  These can include wrongful storage content auctions, tenant insurance problems, security issues, injuries on the premises, and any number of other issues.

Premises liability lawsuits are high on the list of problem areas for owners of self-storage rental units.  These lawsuits are nearly impossible to completely eliminate from any commercial premises.  Still, operators often don’t do enough to protect themselves. If a particular risk appears to present itself more often than others, owners and operators should address such risk.  For example, many storage rental units are accessible at night.  Is there adequate lighting in all areas accessible to lessees?  Owners should also regularly inspect the premises and address any needed repairs. If tenant insurance is offered, it should be thoroughly examined by legal counsel. Operators also need to understand and properly manage compliance with the Americans With Disabilities Act and the Servicemembers Civil Relief Act as they apply to the self-storage industry.

Tenant Privacy Rights and Identity Theft

California’s Online Privacy Protection Act of 2003 requires commercial websites to post their privacy policy, and SB27 gives California consumers the right to know of any third parties who receive their personal information. Like all business operators, self-storage facility operators are responsible for safeguarding the personal information of their clients. This includes personal information (address, phone number, etc.) and billing information. Social security numbers are protected as well, and this protection applies not only to current records but also to discarded records.

Privacy also comes into play where law enforcement is at issue. Police can show up at a storage facility looking for information for a variety of reasons. Sometimes they suspect a storage unit may contain drug paraphernalia, such as that required to run a methamphetamine lab. Also, in the years since 9/11 there have been more instances of federal authorities seeking access to storage facilities in the name of homeland security. To adequately protect their tenants (and ultimately themselves!), owners of self-storage rental units should require law enforcement to present valid subpoenas or warrants when seeking private information or access to individual storage units.

These privacy issues are hotbeds for civil lawsuits, and they are not easy to manage. Records should be stored on secured hard drives. Hacking can and does occur to even the most vigilant operator, and even when the successful manager has done everything possible to prevent outside hacking, there is the separate problem of employee malfeasance. Even the most careful operator managing self-storage rental units can run afoul of statutes and legal protections, making it prudent to hire legal counsel who understands the intricacies of these issues.

Contact Stephen Hammers (stephen.hammers@pcghlawyers.com) or issues involving self-storage rental units, lease litigation and other commercial real estate matters.

LANDLORD UNABLE TO INCREASE RENT ON TENANT

The Appellate Court in the First District struck another ruling in favor of rent control this week.  The residential landlord was surely displeased with this pro-tenant ruling.

Mosser Companies (landlord) owns a nine-unit residential apartment building in San Francisco. The apartment at issue in this case is subject to rent control under the San Francisco Residential Rent Stabilization and Arbitration Ordinance (S.F. Admin. Code, § 37.1 et seq.; ordinance), which limits rent increases to tenants in occupancy (id., § 37.3(a)). Under Civil Code section 1954.53, which provides that “an owner of residential real property may establish the initial rental rate for a dwelling or unit,” local jurisdictions are authorized to impose rent control limiting rate increases until “the original occupant or occupants who took possession of the dwelling or unit pursuant to the rental agreement with the owner no longer permanently reside there.”

The question before the Court of Appeal here was whether the son of tenant parents who years before rented a unit in landlord’s building, and who with landlord’s consent resided with his parents when their rental agreement was entered, is an “original occupant” within the meaning of the statute.  If so, the landlord would be precluded from establishing a new unrestricted rental rate for the apartment when the son remained in the apartment after the parents  departed. The San Francisco Rent Stabilization and Arbitration Board (rent board) and the trial court concluded that the son, although a minor when the rental agreement was entered and not a signatory to the rental agreement, is nonetheless an “original occupant” entitled to the continued protection of the rent control provision.

The Court of Appeal sided with the Rent Control Board on this, protecting the right of the tenant to claim the benefits of the rent restriction when he became an adult.  The Court did seem to question the law on this issue though.  It expressly stated that it had to follow it, but wondered whether the legislature should not take another look at it.  In its concluding paragraphs, the Court writes: “Whether the application of rent control protection to occupants who begin their residency as minors is wise economic policy is a question for legislative, not judicial, determination. Local and state legislators are free to make these public policy determinations provided the rent regulation does not deprive property owners of a fair return on their investment.”  That is not a mere adoption and application of the rent control law; rather, it is a suggestion about action that might be taken in the legislative branch.  The Court was under no obligation to even mention the legislature in this opinion.  Lobbyists for landlords should take note!

CHARITABLE SOLICITATION LIMITED BY COURT OF APPEAL

The Fifth District Court of Appeal has announced an important ruling in Donahue Schriber Realty Group v. Nu Creation Outreach, Case No. F068287. The case pertains to the right to solicit charitable donations on sidewalks near store entrances.

A number of business and real estate clients of Price, Crooke, Gary & Hammers and Stephen Hammers have inquired about this issue. This past holiday season, per inquiries to pcghlawyers.com and hammers-law.com, we were advised that more charitable organizations solicited money in front of businesses and stores than ever before. We have found that businesses have been generally tolerant of such activity. Things change, however, when potential customers are discouraged to enter a shop due to excessive solicitation or blockage of entrances. Disagreements and even altercations can erupt in front of stores and business owners understandably object to such activity.

The confrontation in the Donahue Schriber case began when two solicitors for Nu Creation Outreach collected donations on the sidewalks adjacent to the entrances of stores within plaintiff Donahue Schriber’s property. Plaintiff’s shop “policy” was to disallow charitable solicitation of donations within its property. The owners allowed other forms of expressive activity on the property, such as collecting signatures for petitions in designated areas. Plaintiff asked the solicitors to leave the premises, but they refused. When plaintiff called the police, the officers refused to arrest the solicitors without a court order.

Plaintiff hired counsel and moved for a preliminary injunction, claiming disruption of its business. The trial court granted the injunction, precluding charitable solicitation near plaintiff’s place of business. The preliminary injunction provided that solicitors would only be permitted to request donations in a designated public forum. It precluded solicitors from standing right in front of the business or the areas surrounding the entrance of the business or real estate office. The Court of Appeal found no error in that decision, specifying that the shop’s entrances, as well as its “aprons,” were not a public forum.

Business owners and real estate companies are well advised to seek counsel if they encounter problems with excessive charitable solicitation. All solicitation is not problematic, of course, and there are instances wherein solicitors are well within their rights to collect charitable donations. But when there is blockage of entrances or other such difficulties, action should be taken. In addition to retail shops, the activities can be disruptive to professional service organizations. The appellate court’s decision in Donahue Schriber demonstrates that companies such as real estate offices can obtain relief.

This ruling raises an important issue in the landlord tenant context. Who has the obligation to take action when solicitors create problems in front of a lessee’s retail store, the lessee or the lessor? The answer often lies in the allocation of risk and common area provisions of a business lease. If you are experiencing a solicitation problem, or are uncertain of your rights as lessor or lessee, contact an attorney.

Stephen G. Hammers, Price, Crooke, Gary & Hammers, Incorporated, 10 Corporate Park, Suite 300 Irvine, CA 92606 (949) 573-4910; (800) 511-6058; www.hammers-law.com

HOW TO KEEP COMPETITORS OUT OF YOUR RETAIL SPACE

Most retail shops operating in a mall or other commercial area would like a guarantee that the landlord will not rent to a competing business.  This guarantee is often negotiated in the lease as an “exclusive use” provision.  Here are some things to consider when negotiating exclusive use provisions:

What’s the use?  Commercial tenants should specifically define their “use” in the Lease.  What kinds of other businesses might be allowed in the absence of the provision?  For instance, if a tenant has an ice cream cone shop and also sells a few ice cream cakes, can the landlord still rent to a bakery? If a coffee retailer has “exclusive use,” does that mean a sandwich shop can’t also sell coffee?  Commercial tenants should be specific in the negotiations with the landlord in order to deter competing businesses from renting in the same building.

What about pre-existing tenants?  A landlord can promise not to rent to a competing business in the future, but what happens if an existing tenant wants to change its business model and start offering competing products?  Retail tenant are reminded to inquire about existing leases and the specific nature of the businesses of the other tenants.  Again, use the lease to negotiate the issue of exclusions and limitations in use of the business area by the competing businesses.

What if things change?  What happens if a tenant re-focuses its business and the use changes? Can it still keep the competitors away…and can it do so with regard to the new focus of the business? What if the tenant sublets some space or assigns the lease – does the exclusive use still apply?  If the tenant temporarily falls behind on the rent, does it lose the right to exclusive use?  All of these issues can and should be addressed in the lease.

What’s the remedy? If a tenant moves in, and changes the focus of its business to compete with an existing tenant having a similar business, and an exclusive use provision, what is the landlord’s remedy?  The Lease will often describe the notice provisions and “events of default.”  A Notice of Default and eventually a Notice to Quit may be proper remedies.  Conversely, can a tenant take legal action if a landlord violates the contract and leases space to a competitor?  Again, remedies are typically proscribed by the Lease, and if the evidence is availing for the tenant, an action for injunction will likely be an appropriate measure.   Be wary of withholding rent, and be sure to consult with an attorney before taking any action that could be construed as a default.

LESSEE LIABLE FOR SLIP AND FALL?

If you are a commercial tenant, running a business and occupying under a commercial lease, can you be liable for injuries if a visitor or other passerby slips and falls outside your business? 

The answer depends on a number of factors.  The most important, however, may be a Court’s assessment of legal responsibilities of landlord and tenant under the commercial lease.

This issue came up recently in a non-California case against P.F. Chang China Bistro restaurant.  A woman by the name of Sabena Beriy fell on what she claimed was a poorly maintained curb outside a P.F. Chang’s. P.F. Chang’s had leased the property from a landlord as part of a larger development. The lease provided that P.F. Chang’s was responsible for any injuries on its “premises,” and that the landlord was responsible for any injuries that occurred “outside” the premises.

P.F. Chang’s claimed that Sabena’s fall occurred in the common area of the development, not in its restaurant. It also claimed that the landlord was responsible under the lease for designing and maintaining the parking areas, driveways and curbs.

The landlord prevailed in the end.  According to the court, the area in front of the restaurant was not “common,” but was exclusively for P.F. Chang’s use and was part of P.F. Chang’s “premises.” Further, while the landlord was supposed to build and maintain the curb, the lease provided that any such improvements on exclusive-use areas were again part of P.F. Chang’s “premises.”

Commercial tenants should take note.  It’s important at the time of negotiating the lease exactly which areas establish legal responsibility for the tenant, and which do not.  This is especially true in the context of the tenant’s liability insurance.  Failure to accurately assess which property is part of the tenant’s premises, and which is not, may end up not only with primary responsibility for an accident, but inability to tender a claim to insurance!

A Lesson for Landlord Attorneys: Mind the Details

The recent case of Bank of New York Mellon v. Preciado (2014 S.O.S. JAD14-06) serves as a good reminder to commercial landlords to pay close attention to details when dealing with residential evictions.  When commercial lenders take properties back by way of foreclosure, they often must deal with the unfortunate remaining task of doing an unlawful detainer on the property.  Many such lenders and their property managers are not accustomed to the rigorous detail required by the statutes in such situations.  The case by New York Mellon against Preciado is a good example of such a “trap for the unwary.”  

California’s legislative branch has taken extensive measures to protect tenants from wrongful and improper evictions.  The rules for residential landlords are rigorous.  While this blog is generally dedicated to commercial lease issues, the following lessons serve as important reminders to commercial lenders and owners when dealing with residential tenants.

Lesson number one for landlord counsel in this case appears to be: never underestimate the resolve of your adversary.  This case, while apparently a quick post-foreclosure eviction, turned out to be a matter that proceeded all the way through trial and up to the Court of Appeal.  The trial court ruled in favor of the landlord, but the tenant did not stop upon the issuance of that ruling.  The tenant’s appeal was unusual and was in fact a far more extensive step than most tenants take in residential cases.  But therein lies the lesson.  The fact that a tenant may be destitute should never be mistaken for a lack of resolve.  Landlord counsel should always expect a tenant to seize upon legal opportunities.

Lesson number two for landlord counsel arising out of the New York Mellon case: hire competent process servers.  Here, the Court ruled that service of process was ineffective where the process server posted notice and made no mention in his declaration that he at least ATTEMPTED personal service.  Where service is carried out by a registered process server, Evidence Code section 647 applies to eliminate the necessity of calling the process server as a witness at trial.  Landlord attorneys usually do not call their process servers as witnesses, and why should they?  If the presumption protects them, why open up Pandora’s Box and put the case in a position of unnecessary risk?  Well, the rule may be generally helpful to the landlord in presenting the case, but it is most certainly another trap for the unwary.

Counsel must make absolutely sure that the Process Server’s proof of service (affidavit attesting to the service) complies with legal requirements.  The proof of service must demonstrate that, even if substitute service is ultimately the basis for the service, the process server at least TRIED to serve the termination notice personally.  No such statement was provided in the proof of service here, so once again, the landlord lost.

Lesson number three for landlord counsel from the New York Mellon case: Be prepared to thoroughly prove up transfer of title.  Post-foreclosure evictions require, as one essential element of proof, that the owner prove he/she/it owns the property.  This really is not a complicated fact.  But the problem arises when there has been, for example, a sale conducted other than by the trustee identified in the deed of trust, and no evidence is put forth showing authority to conduct the sale.  Again, these details are often overlooked, as they were here, and careful attention must be paid on the landlord side to the issue of title, as well as all other issues discussed above.