It is inevitable that disputes will occur between self-storage tenants and facility operators. Those disputes can range from alleged property loss and damage claims to wrongful sale and disposal claims. Fortunately, many of those disputes can be resolved between the parties for little cost and little disruption, but there are situations where such claims can escalate and become matters that cannot be amicably resolved.
Historically, such claims found their way to the public courts. Sometimes those claims would remain as individual tenant claims, but oftentimes those claims would evolve into class actions, adding hundreds if not thousands of other tenants into those disputes, claiming those tenants are “similarly situated parties.”
More recently, tenant claims that have been filed in the public courts have been delayed by the COVID-19 pandemic, leaving those claims as outstanding matters cluttering the courts’ dockets. Based on the backlogs due to court closures, many of these claims may not be heard for months, if not years. More significantly, many of these claims involve current tenants, and these outstanding claims remain as open, unresolved, and pending disputes between tenants, managers, and operators.
A remedy for the class action risk and, more recently, the impact from the pandemic, is for operators to consider adding arbitration provisions to their rental agreements to address the method for dispute resolution between themselves and their tenants. By adding mandatory arbitration language to their rental agreements, operators are able to avoid the risk of matters escalating into class action claims. Additionally, and significantly, such disputes can therefore be moved out of the public arena and into a private process. By doing so, the parties can bypass long court dockets and seek private administration and resolution of their pending disputes. Arbitration seems to be the “win-win” for these and many other reasons.
The process of converting from courts to private arbitration is easy. It is all driven by the parties’ written agreement. Adding an arbitration clause into the rental agreement (or an addendum to a rental agreement) is all that is required. To make the process even more seamless, the operator can decide in advance which service to use and which set of rules to apply. There are arbitration service providers that can administer and resolve self-storage tenant claims throughout the country. For instance, National Arbitration and Mediation (NAM) has a dedicated team of case managers familiar with these types of claims and offers a customized program for administering self-storage tenant claims, with a specific set of rules and procedures (see www.namadr.com).
A sample of the contract language would include the following:
MANDATORY BINDING ARBITRATION: In the event of any claim, dispute, or lawsuit by Occupant against Owner (or Owner against Occupant) arising from Occupant’s rental or use of the storage space or this Rental Agreement, the claim, dispute, or lawsuit shall be submitted to binding arbitration upon the request of either party and the service of that request on the other party. The parties agree that the arbitration shall be conducted and heard by a single arbitrator to resolve the claim, dispute, or lawsuit.
CLASS ACTION WAIVER: THE ARBITRATION MUST BE CONDUCTED ON AN INDIVIDUAL BASIS AND OCCUPANT AND OWNER AGREE NOT TO ACT AS A CLASS-REPRESENTATIVE OR IN A PRIVATE ATTORNEY GENERAL CAPACITY IN ANY CLAIM, DISPUTE, OR LAWSUIT.
GOVERNING LAW AND RULES: The arbitration must be brought within the time set by the applicable statute of limitations or within two years of Occupant vacating the premises, whichever occurs first. The Federal Arbitration Act (FAA) shall govern this arbitration agreement. The Arbitration shall be conducted by National Arbitration and Mediation (NAM) under its Comprehensive Dispute Resolution Rules and Procedures for the Self-Storage Industry. The NAM arbitration rules and procedures may be found www.namadr.com.
The shift to arbitration to help resolve tenant claims is the next step toward easing the burden on operators to work through disputes on their properties. Arbitration can help reduce claim risk and increase efficiency in moving disputes toward closure. The risk of claims is a “cost of doing business” for all real estate owners and operators. Using arbitration is just one way to make that cost lower and the process faster and easier.