Guest Post: Abandoned Business Records: Is the Burden on the Tenant to Disclose or the Facility to Protect? By Scott Zucker

 

In the last few years, it has not been uncommon for self storage operators to find abandoned units containing business records left behind by closed businesses. Sometimes these tenants are licensed professionals like doctors, lawyers, mortgage brokers and insurance agents and the files left behind are the patient, client and customer records of these professionals. In that case, the information present in these files may not only be important to these third parties, but certainly would be problematic if these files were either sold at a lien sale or retrieved from a dumpster.

In order to protect the third party patients, clients and customers, as well as the innocent storage operators who find these abandoned records, there have been statutory efforts to clarify both the process of handling these types of records as well as the potential liability associated with disposing of such records. And in those states where the law has not been changed to address these issues, the industry has recommended some “best practices” to respond to the circumstances when they occur.

Nevada is one state where the law has been changed to place the burden on the tenant to disclose to the operator when first renting the storage unit if any property in the unit is “protected property”. Under Nevada Revised Statute §108.4743, such property is defined to include documents containing personal information (such as social security numbers, credit or debit card information, bank account information, passport information and medical or legal records) as well as pharmaceuticals, alcoholic beverages and firearms. Not only does the Nevada law require that the tenant disclose this information to the operator, it also requires that the tenant notify (if the tenant is a licensed professional) the agency, board or commission that issued their license. The tenant is further required to give the licensing entity information about the property stored and the facility where the records are stored as well as a second source to contact if the facility operator is otherwise unable to reach the tenant.

The Nevada law further addresses how the operator can dispose of any such items if abandoned by the tenant. The operator is required to attempt to return the property to the tenant, the secondary contact or the agency that issued the license to the tenant. If those efforts to return the protected property fail, the operator is given the right to dispose of the protected property by “destroying the protected property in an appropriate manner which is authorized by law and which ensures that any confidential information contained in the protected property is completely obliterated and may not be examined or accessed by the public”.

A similar change in the law has occurred in Arizona where under Arizona Statute §33-1704 (F) such “protected property” must be returned to the tenant or appropriate governmental agencies and, if not returned, properly disposed of by the operator. The statute reads that “The operator is not liable to the occupant or to any other person who claims an interest in protected property if the operator disposes of the protected property pursuant to this section. Proper disposal methods include destruction of the protected property or surrendering the protected property to appropriate state or federal authorities if those appropriate state or federal authorities accept the protected property”.

Essentially both the Nevada and Arizona laws place the burden of disclosure on the tenant, which then triggers the responsibility of the operator to notify the tenant and other parties to retrieve the property before the operator is given the right (and protection from liability) to properly dispose of the property.

North Carolina recently passed a law (NC Statutes § 42-14.4) which addresses the handling of documents located in an abandoned storage unit if the tenant is known to be an attorney. The statute provides that if the operator has “actual knowledge” that a tenant is an attorney, the landlord must deliver notice to the North Carolina State Bar at least 15 days prior to the destruction of any “potentially confidential materials” remaining in the premises. After notice is given, the State Bar may take possession of the materials without the operator being held liable for the turnover of the documents. If the State Bar doesn’t take possession of the records within the 15-day period, the operator is given the right to destroy the records. This statute similarly places the initial obligation for disclosure on the tenant. Then, should the documents in the unit be abandoned, the operator is then required to seek a turnover of the documents (like Nevada’s law) before disposal. However, if disposal occurs after such due diligence by the operator, the risk of liability for the disposal is waived.

More and more states are trending towards these statutory protections for storage operators and other landlords once the tenant makes the disclosure that the property in the unit may be confidential or the operator discovers that the property may need such protection. However, if state law is silent on these matters, many operators are still taking the approach that such due diligence is warranted when personal records of patients, clients or customers are discovered (as compared to simply the business records of the defaulting tenant itself). Operators are applying certain “best practices” by first verifying that the property will not be sold and then taking the extra effort to return the records to the tenant or the agency holding that company’s license. If, after such due diligence, the records are still present, the operator is in a safer position to dispose of the documents.

Certainly, one way to address this growing problem is to prohibit the storage of such “protected property” the same way operators discourage the storage of perishable goods, hazardous materials and items with sentimental value. But unfortunately, just as operators try to limit the use of their storage units with these restrictions, tenants still violate the rules. When it comes to confidential or personal records of others found in abandoned units, operators must attempt to return the property to the tenant or the proper authorities before disposal. Such efforts will go far in protecting those operators from liability arising from the eventual disposal of the property.

About Scott Zucker

Scott Zucker specializes in business and commercial litigation with an emphasis on dispute resolution in the areas of construction, real estate, employment, landlord-tenant and franchise law. Scott represents companies in matters relating to contract claims, loss and damage claims, delay and productivity claims, premises liability actions and tenant dispossessory. Scott also reviews and drafts construction contracts, property leases and employment agreements, trains property managers in office, retail, multi-family, industrial and self-storage and evaluates property management operations in those areas. Scott also has extensive experience in creditors’ rights and bankruptcy proceedings as well as in commercial collections. He represents companies throughout the country in resolving their commercial disputes in state or federal courts and through Alternate Dispute Resolution. Scott obtained his undergraduate degree from Washington University in St. Louis in 1984 and his law degree from George Washington University in Washington, D.C in 1987. For more information, please visit: http://www.wzlegal.com/

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