Managing Lien Sales through On-line Auction Platforms

Protect yourself from Non-payment

The portable storage business continues to develop at a fast pace throughout the country with operators entering the market on a constant basis.

It is clear that portable storage is generally not the same thing as self-storage. However, there are similarities:

• There is a space or container used to store tenant's property; and

• After the tenant loads their property inside, closes and locks the door, they pay monthly rent.

But what happens next can be what differentiates the two. Unless the portable unit is left at the customer's location, generally the portable storage operator picks up the unit and brings it back to their warehouse where the unit is placed with others. Then, at some point in the future, the unit is returned to the customer.

While the unit is on the truck and is at the warehouse, there is arguably no “self-storage” involved. Instead, the portable storage operator has taken “custody and control” of the rented unit. Inherent with that is potential bailment liability, i.e. if the unit is damaged while being loaded or unloaded on the truck or during transit.

In contrast, self-storage operators simply rent space suitable for storage. They use a rental agreement because the law perceives a self-storage operator as a landlord renting space to a tenant. They take no bailment responsibility for the goods inside the unit. The self-storage operator does not inventory the items stored in the space and generally does not concern itself with the type or quantity of property stored as long as the items stored do not violate the use provisions of the lease.

Both self-storage and portable storage operators are given a lien over their customer's stored property. That lien can be foreclosed if the customer does not pay. Article 7 of the Uniform Commercial Code (“UCC”), specifically §7-210, outlines the enforcement of a warehouseman's lien. Self-storage liens are provided within individual state laws and appear identical to the UCC lien laws since the self-storage laws were modeled after the UCC. Some states have even amended their self-storage laws to include portable storage.

Documents used for portable storage should contain language as to the operator's lien rights over the stored goods and the right to foreclose on that lien should the tenant not pay its rent. The language would commonly read as follows:

Lien and Security Interest: Company has and claims a lien on all Property in the Container covered by the Warehouse Receipt/Rental Agreement (and the proceeds thereof) for charges for administrative, storage, transportation, insurance, labor or other charges, present or future, in relation to the Property, and for expenses necessary for preservation of the Property or for expenses necessary or reasonably incurred by Company in the sale of Customer Property arising from Customer's failure to pay rent or storage charges pursuant to law.

Through such a lien, if a portable storage tenant fails to pay their rent, the operator, after proper notice/advertisement, may foreclose on the stored property inside the container and sell the contents at public auction for the purpose of recouping the debt.

State laws provide that “Any sale or other disposition of the personal property shall be held at the self-service storage facility or at the nearest suitable place where the personal property is held or stored.” On-line platforms, like storagetreasures.com and storagebattles.com, permit bidding on delinquent units and the sales (defined as the transfer of funds in consideration for the delivery of the purchased merchandise) are conducted at the facility. There is also an expectation that sales be “commercially reasonable,” meaning that the operator is getting a fair market value for the property being sold. That is mostly determined based upon the number of bidders in attendance at the sale. With on-line sales, the opportunity to get more bidders is greater than with live sales since the distance an on-line bidder travels is much farther than sales held at a facility.

At the end of the day, as portable storage and self-storage become more intertwined, the use of on-line auction platforms to conduct lien sales will become more common and more successful to recover more of an operator's loss.

Jim Grant is President/CEO of StorageBattles.com, the world's largest on-line storage auction service which performs over 7,000 storage auctions per month for 5,000 independent storage companies. Jim can be reached at [email protected]

Scott Zucker is a partner in the law firm of Weissmann/Zucker, P.C. 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. Scott can be reached at [email protected]