When you hear the term “risk mitigation,” what comes to mind?
“Mitigating risk is really about being aware of your surroundings and if you notice something could be a problem, taking quick action to correct it,” says Ella Tayrien, vice president of claims for MiniCo Insurance Agency in Phoenix, Ariz., who add that this could be as simple as noting that a corner of a rug keeps coming up and could present a hazard, to something more involved, such as doing complete walk-throughs on the property on a regular basis.
Scott Zucker, partner at Weissmann Zucker Euster Morochnik & Garber P.C., in Atlanta, Ga., says risk mitigation is very important to self-storage owners and should be a priority. “If you don’t properly manage your property and the risks, there are plenty of hungry plaintiff attorneys ready to sue,” says Zucker. “You have to keep in mind you could really be sued for anything.”
Tayrien says MiniCo alone processes about 700 claims per year. “That’s really not a high number, but the size of the self-storage facility can drive the amount of the claim up,” says Tayrien. “The value of the loss itself can be really high.”
There doesn’t seem to be statistics specifically on how many claims are filed across the self-storage industry every year, but Insureon, a company that focuses on small business, conducted a survey in 2016 and found that one in three small businesses filed a claim of some sort the previous year.
“Self-storage facilities are really quiet places; they aren’t like other retail,” says Carlos Kaslow, partner for Self Storage Legal Network in Berkeley, Calif. “There are a lot of things that can present risks, but not a lot happens very often. Still, you need a plan to mitigate risks and you can do that through various ways.”
1. Trip and falls: Tayrien says this is one of the biggest risks for self-storage operators. “It could be a step that’s loose, sand on a walkway, or that corner of the rug that keeps coming up,” says Tayrien.
“You have to recognize that self-storage is a business that invites people to come onto the property,” says Zucker. “You have tenants, prospects, and there’s an understanding tenants may allow other people to visit the property.”
Another spot to watch for with regards to possible trip and falls is on asphalt driveways. “You have to make sure your asphalt is square,” says Raheem Amer, senior vice president of operations at Devon Self Storage in Dallas, Texas.
Potholes can not only damage cars or moving vans if they drive through them, but people walking the property can also hurt themselves, says Melissa Stiles, vice president of marketing and sales with Storage Asset Management in York, Pa. “If there’s a pothole, your managers should put cones around it and go through the chain of command to work to get it fixed as soon as possible,” she says.
2. Overhead doors, gates, and elevators: “We’ve seen where elevator doors have come down on people, as well as gates hitting cars,” says Tayrien. “Sometimes people will walk through a gate or go through a door and the censors aren’t working and they get caught.”
3. Homeless encampments: No matter if people have set up residence inside the unit itself or on the back of your property, this is something that can bring significant liability. “Operators are kind; they want to help people, but they cannot allow the homeless to live on their property,” says Zucker. “Even if they want to help, it’s not permitted due to fire and safety codes. I know operators want to be kind to people, but it can’t be looked at any other way besides a risk.”
4. Lien sales: “The self-storage industry is unique in that it has the right to do a lien sale without going to court, but we also have the obligation to do the lien sale properly,” says Zucker. “The operators are taking a big risk if they foreclose on the property without the proper notification and documentation.”
Amer agrees that this presents one of the biggest risks for self-storage operators. “We have a list, and the managers have to check each step off the list,” says Amer. “We require two forms of verification before a lien sale, first from the manager that everything has been done and then a regional manager looks at it and double checks.”
Because each state has its own requirements, you have to be very familiar with the statutory requirements in each state, even if you own facilities in multiple states.
5. Fire, theft, and damage to personal property: “Well drafted releases of liability typically take care of most, but no contractual agreement is perfect,” says Kaslow. “There are some limitations.”
6. Weather disasters: Heavy snows and ice are one of the biggest risks for self-storage, but there can also be risks when there are windstorms, tornadoes, hurricanes, floods, wildfires, and other disasters. “The liability in these situations is typically not as great, but there can be a few claims,” says Kaslow. “Five to 10 percent of tenants may file suit.”
7. Discrimination, ADA, and other complaints: Kaslow points out the federal ADA only applies to companies with more than 50 employees, but states may have a lower employee threshold.
- Fully Insured: “Mitigating risk is making sure you insure your risk, first,” says Zucker. “You take into consideration your exposure to asset to your business.”
Kaslow agrees. “The starting place is insurance,” he says. “This is the area that can provide the greatest protection.”
It’s been estimated by multiple sources that at least 60 percent of businesses have inadequate insurance or none at all. Kaslow points to one suit against a large corporate storage company for $15 million. “It involved an attack on the property by someone with a machete,” says Kaslow. “They weren’t renters, so the liability release in the rental agreement didn’t protect the facility. This was probably a one in 10 million event, but you need that insurance to protect yourself and your property.”
Experts say you should review your insurance policy on a regular basis and make sure you have adequate protection for liability as well as your property.
- Contractual Releases and Mandatory Renter’s Insurance: The second-best way to mitigate risk is through your rental agreement, which should be drawn up by an attorney (or at least reviewed by an attorney) familiar with the self-storage industry, small business, and your state laws. “When suits are brought, the release of liability in the contract, as well as a limit on the value of the goods stored, are the most effective,” says Kaslow. “When you set up your rental agreement, it’s best to have multiple defenses, including the release of liability, the requirement the renter have insurance on their goods, and setting a limit as to the value of goods stored.”
Most contracts limit the value of goods stored at $5,000. Kaslow says that laws for more than 30 states declare that the owner has the right to limit the effective value of the goods stored.
- Proper Property Awareness and Maintenance: To help protect your property from liability in the first place, your managers should be trained to inspect the property on a regular basis. Amer says the managers within his company have a check list and are required to do a walk through each Wednesday. “The purpose is to identify life safety concerns, including looking at security, cameras, lights, gates, potholes, anything that could cause harm to the customer or to the property,” says Amer. “We trust our managers to verify everything, and if there’s something that needs addressed right away, we send the maintenance team or a contractor to give estimates.”
According to Amer, the key is good communication and having the district managers review the check lists every eight to 12 weeks.
When it comes to risk management, Zucker says that the aim is to make sure the operators within the industry are educated on how to minimize the risk to their businesses. “The National Self Storage Association, as well as the state associations, have done a very good job at educating,” says Zucker. “Their number one focus has been educating about statutory guidelines and best practices.”
Zucker highly recommends these programs and any others offered that provide managers certification in self-storage management.