When ranking the most enjoyable activities you do as a self-storage operator, collections probably aren’t even on the list. After all, if you’ve ever received a collection call or letter, you know how “fun” they can be. Still, staying on top of overdue payments is a necessity in this business. Let’s take a look at some legal considerations to help you be more efficient in this business while avoiding the associated risks.
Communicate, but be careful
Your customers should know that non-payment will not be tolerated. In almost everything, communication is the key to success, while its absence can only breed failure. This is especially true when it comes to self-storage delinquency. To collect the rent, you must communicate with your tenants; but do it in a smart and legal way!
First off, you’ll probably be making a bunch of phone calls. Keep track of all attempts. If you find yourself in court, being able to show how hard you tried to collect before going to auction will impress the judge. Calling someone’s home or office isn’t generally considered harassment, but check your state’s laws for advice. Just make sure you only share account information with the tenant who signed the rental agreement. He is not OK to call someone’s office and tell a supervisor that their employee owes you money.
If you’re using a third-party collection agency, it’s a good idea to let tenants know that their account can be turned over to them. If you have a lawyer, it is okay to let clients know that their account can be turned over to a lawyer to take legal action. What is wrong is threatening these activities if you don’t intend to go through with it. When you bring up the possibility of assigning the matter to an agency or a lawyer, say the count may be delivered, no will to be.
Letters are another effective method of communication. When you send one out for collection, let the tenant know the amount owed and how you got to that number. Tell them where and how they can pay. Keep a copy in the tenant’s file for your records.
Whatever methods of communication you use, keep a cool head and be kind. Renters can react harshly, which can be difficult, but kindness is the best way to get someone to do something they don’t want to do. To avoid uncomfortable situations, start the collection process early. Don’t wait for the debt to get unmanageable and the fees to pile up.
Know the law
Collection methods that resemble the actions of a “Godfather” movie are certainly a no-no. Organizing a demonstration in front of a tenant’s home is not acceptable. Posting nasty comments on social media is also a bad idea.
Of course, you already knew that! But there are less obvious activities that can get you into legal trouble, especially with the Fair Debt Collection Practices Act. There is a federal version but also state versions. Under the federal government, an owner or employee who collects a debt is not subject to the restrictions of the law, but this can vary from state to state. In Texas, for example, anyone who collects money on their own behalf is automatically considered a “debt collector,” which puts them under certain restrictions. In general, most states prohibit practices that involve:
- Using obscene language or name calling
- Threat of criminal prosecution
- Make anonymous phone calls
- Making repeated harassment calls
- Threatening injury or bodily harm
Common sense is a great guide here. If you think an activity would be harassment if it was directed at you, it’s probably something you shouldn’t turn on against your tenant. A good rule of thumb is to treat the customer the way you would like to be treated. If being nice doesn’t work and the tenant is stubborn, you can move on by taking them to a collection agency or a lawyer.
Focus on prevention
If you just don’t want to bother with your self-storage collections or are concerned about the legal risks involved, you can just do your best to prevent them! Fortunately, there are ways to minimize the need to perform these activities in the first place.
First, make sure your rental agreement is well written, complete, and contains appropriate language to get people to pay on time. Also make sure that if they don’t pay, your remedies are swift and conclusive according to the law in your state. Not sure if your deal is up to the job? Send it to a knowledgeable self-storage lawyer to have it updated. A strong, precise and legal contract is the first step in preventing collections.
If you haven’t already, consider asking your tenants to sign an automatic payment agreement that will allow you to automatically charge their credit or debit cards each month. And keep a backup payment method for your records in case the renter’s card expires or is canceled. The backup can be a PayPal account or a direct bank draft.
Have a collection system in place. For example, your plan might show that on day X the first call is made; on day Y, the second call is made; on day Z, the first letter is posted, etc. Make sure the plan identifies a particular day on which to begin the lien process, or send the case to a collection agency or lawyer. Once you have a written strategy, stay alert and follow it conscientiously.
Finally, remember that you don’t have to rent accommodation to anyone. You have the right to refuse a rental as long as this decision is not discriminatory. So if you have a bad feeling about a customer, don’t continue. For example, if a prospect doesn’t have a credit card and their check is numbered “0001,” you might not want to rent that space. If a customer comes in smelling like they’ve just finished swimming in a barrel of alcohol, think twice. Although the tendency to rent accommodation is strong, there is no point if the tenant does not pay their rent in the end!
Following the strategies above should help you minimize pickups and get organized when needed. If you are unsure of how to proceed, or if you have a unique situation that requires expert advice, contact a self-storage lawyer.
Murphy Klasing is a partner at Weycer, Kaplan, Pulaski & Zuber PC. He has extensive experience in appeals, arbitration and litigation, successfully handling numerous disputes. With over a decade of experience in the self-storage industry, he serves as legal counsel to Public Storage Inc. in Oklahoma and Texas, and has defended cases involving allegations of breach of contract, breaches of the code. , employment issues, fraud, negligence, personal injury, premises liability and theft. To reach him, dial 713.961.9045; E-mail [email protected].