Contrary to what some tenants might think, most self storage operators see storage auctions as a last resort. After all, the average storage auction—and the entire lien process for that matter—is time consuming and stressful. Most storage facility managers are lucky if the profits from a storage auction even cover unpaid rent and lien fees. Turning a profit on top of that is rarely part of the equation.
So how do you prevent storage auctions?
Until a magical device is created that allows a self storage operator to go back in time and avoid renting to tenants who can’t pay in the first place, here’s some advice on what to do.
Despite what you may have heard on Storage Wars, self storage auctions aren’t always a non-stop thrillride. But if the idea of preventing a self storage auction still makes you skeptical, here are three good reasons to give it a second thought:
Auctions are costly. There are numerous costs associated with storage auctions—some expected and some unexpected. From taking out ads for the auction in local newspapers to sending notices to delinquent tenants in the mail, it adds up.
Auctions are time consuming. As a self storage operator, you’re already busy. You’ve got to assist tenants, give facility tours to prospective customers, perform maintenance duties, answer phones, perform managerial duties...the list goes on. If your time and your staff’s time is being tied up by the lien and subsequent auction process, it can cost you time.
Auctions can leave you legally vulnerable. If you don’t follow your state’s lien laws to the letter you can end up on the wrong end of the legal system. It should come as no surprise that most tenants don’t enjoying have their storage units auctioned off. Even if you did everything correctly, you can end up in small claims court.
Even if you screen self storage tenants, it’s not always possible to know which new customers are going to miss rent payments. Some customers may fully intend to be responsible tenants, others might slip up due to miscommunication. This is why it’s important to prevent new tenants from defaulting on self storage rent.
Obviously you don’t want to accuse them of making a mistake they haven’t—and might not—make. So approach this from the angle of wanting to make the self storage experience easy to understand and customer-service driven.
First, be sure that the language in your lease is clear regarding the lien process. Next, give tenants the time to actually read the lease before signing it. You might even highlight important parts. You should also explain the lien process verbally, taking the time to communicate what will happen if the customer is having a hard time paying rent.
Most importantly, let new tenants know that your door is always open for questions regarding this and other concerns. Make sure that they have a copy of their lease and your contact information.
Now let’s move on to the tenants that you just know are going to forget—or in some cases, “forget”—to pay their rent. Let’s call these your at-risk tenants.An at-risk tenant is someone who has a history of late payments or missed payments. Maybe they’ve bounced a check. This could be someone who has a history of missing payments at other storage facilities. Maybe they’ve failed to pay rent on an apartment (not that you’d necessarily know that). An at-risk tenant may also be someone who has previously violated some other part of a lease, such as storing prohibited items or loitering at the storage unit.
Once you enter the early stages of dealing with an at-risk tenant (i.e. that first missed payment, bounced check or request for an extra long grace period), you can prevent the situation from advancing to the auction stage by communicating with them and, depending on the severity of the situation and the amount of money owed, doing one of the following:
Work out a payment plan. Whether you’re dealing with someone who is habitually paying rent late or a loyal tenant who has fallen on hard times and is struggling to make ends meet this month, you can choose to accept partial payments or work out a payment plan.
Allow the tenant to move out. If a tenant is on the hook for money that you know you’ll never get from them and you doubt that a storage auction will recoup the amount, you might actually come out ahead by accepting the loss and allowing the tenant to move out. This will allow you to rent the storage unit out so that it can start generating revenue again. It should be noted that while a storage auction is often seen as a last resort, this is a close second.
Naturally you might also evict the tenant, assuming the language of your month-to-month lease makes this a somewhat easy option. If it doesn’t, the eviction process might be just as much of a headache as the lien process.
As with most self storage dilemmas, your facility will get through this. Every storage operator deals with challenging tenants now and again, but hopefully the ones who pay on time will make up the difference.