A Primer on Self Storage Liens
In essence, self storage lien laws govern the rights of self storage facility owners (or "operators") and tenants (or "customers") in the event that a customer fails to pay their storage space rent. If customers become delinquent in their payments or if they fail to perform some other required act (such as failing to lock the self storage unit), the operator typically has the right to sell the customer’s stored belongings at auction, or otherwise dispose of them.
California’s self storage lien laws are set forth in the state’s Civil Code beginning at section 21700. The laws allow operators a non-judicial method of enforcing their liens by means of an auction. This allows operators to sell or otherwise dispose of vehicles , boats, trailers and other personal property which customers have left at storage facilities, without going to court.
Over the years, self storage lien laws have been upheld by courts throughout California. Because they are available to self storage facilities, customers also must comply with their provisions. In addition, California law recognizes storage liens in several other contexts, such as those in the rental of other items, or in sales or other transfers of personal property.
How California Self Storage Liens Work
California’s self storage lien laws, codified under California Code of Civil Procedure §§ 21700-21716, provide self storage facility owners with a method for collecting storage costs due from non-paying tenants. The most basic premise behind self storage lien laws is that the facility owner possesses a lien on personal property (stored goods) located within the self storage unit for rent arising out of a fixed term lease between the owner and tenant. To this end, the lien functions as a security interest subject to all of the same procedural and substantive protections afforded to secured creditors under Articles 9, 2A and 5 of the Uniform Commercial Code. Importantly, under California law, the storage contract creates a landlord-tenant relationship between the owner and tenant.
Under the California self storage lien law, "occupant" means the person who occupies space at a self storage facility held out to the public generally for the purpose of storage of personal property (CCP § 21700[b][1]). "Owner" means the owner, operator, lessor, or sub-lessor of a self-service storage facility, the manager of a self-service storage facility, or any other person authorized by the owner to manage the facility (CCP § 21700[b][2]). "Personal property" means movable property (CCP § 21700[b][3]). "Self service storage facility" means real property designed and used for renting or leasing space to tenants for long-term storage of personal property (CCP § 21700[b][4]). "Recreational vehicle" means a vehicle of a type that is required to be licensed under the Vehicle Code and is used primarily for recreational or vacation purposes (CCP § 21700[b][5]). "Storage space" means individual, self-contained, interior or exterior compartments at a self storage facility that are separated from one another, and at which personal property may be stored (CCP § 21700[b][10]).
Before a Lien is Established
After the expiration of the late fees and costs (after the first day of the month following a delinquent payment) the storage facility owner must notify the occupant of the lien. The facility owner must send this notification by regular mail (to the address provided by the occupant). The notice must also be sent by certified mail, return receipt requested. If that is not successful, the facility owner can use a private mail delivery service or another commercial mailing service.
If the payment still isn’t forthcoming, the facility owner may advertise the lien sale. Advertising may be in a newspaper of general circulation in the county where the property is located. If there’s no newspaper of general circulation then the advertisement may also be posted in three places within the property. (Keep in mind that this must be done at least 10 days before the sale takes place.)
In California, the sale must be made at the location of the liened property or some other place within the county.
The highest bidder wins the lien sale. The successful bidder must then pay for the property. And once the payment is complete, the storage facility owner provides a bill of sale or other proof of sale. The sale is then complete.
Issuing Notices
Pursuant to California law, a storage facility must maintain a current address of the unit holder. Any notices to the unit holder must be mailed or personally delivered (except for the notice of lien sale or the notice of foreclosure). Storage facilities are required to send a notice of default to the unit holder, however, notice can be sent to the address contained in the records of the storage facility. Nonetheless, send to a different address if such address is requested by the unit holder.
The following notice is set forth in Section 21702 and is required prior to foreclosing on the lot:
YOU ARE HEREBY NOTIFIED THAT YOUR PROPERTY IN ________ AUXILIARY STORAGE, INC., _________(Storage Facility Name) IS SUBJECT TO A LIEN PURSUANT TO SECTION 21700 ET SEQ. OF THE CALIFORNIA BUSINESS AND PROFESSIONS CODE. UNLESS YOUR DEBTS TO THE OWNER ARE PAID WITHIN 14 DAYS AFTER THE Mailing DATE OF THIS NOTICE, YOUR PROPERTY MAY BE SOLD. YOU MUST PETITION THE COURT FOR AN ORDER PROHIBITING THE SALE IF YOU CLAIM A SECURITY INTEREST IN THE PROPERTY AND THE AMOUNT DUE IS $600 OR MORE. IF YOU DO NOT OBJECT IN WRITING WITHIN 10 DAYS AFTER THE MAILING DATE OF THIS NOTICE, YOU WAIVE ANY FURTHER RIGHT TO OBJECT AND YOUR PROPERTY MAY BE SOLD WITHOUT FURTHER NOTICE.
TIP: As with other requirements, this approved language is optional. To avoid any challenges as to the sufficiency of notices, one can simply use the above-approved statutory language.
Even if a lease does not provide for a right to attorney’s fees, a landlord may only recover attorney’s fees if they are authorized by statute. A landlord cannot recover attorney’s fees under a California lien statute because they are not equitable or ex contractu.
The landlord may foreclose on the lien and sell the property. A lien, however, is lost if the storage unit is given away for free. This may happen, for example, in the case of foreclosures of personal property. To avoid the loss of the lien, some lien statutes read: "The owner of a self-service storage facility may deny use of the storage unit to the former occupant until the amounts due for the property sold due for the property sold occasioned by the original contract for storage have been paid."
TIP: Because the law in this area is unsettled, when selling property at a lien sale, consider entering into a contract for the lease of property, for a particular period of time, pending receipt of the sale proceeds. Otherwise, the landlord could lose the lien.
A landlord may present a written proposal to retain the tenant’s goods in exchange for an injunction against other suit claims by the tenant for breach of the lease. However, the landlord should retain the right to dispose of the property at a lien sale.
TIP: Because the issue of a landlord’s right to retain property is unsettled, an injunction from the court prohibiting the exercise of sales and other rights unless the tenant pays the amount due, together with an agreed retainer and deposit might be wise.
Auction Process for Occupant Units
Once the lien claims have been perfected, the storage facility can move forward with the process of selling the contents at auction. Unless the tenant comes forward to make a payment and satisfies the lien before the date the auction must be held, the facility owners or operators must hold an auction of the contents, subject to the applicable notice requirements.
Section 2328 provides a list of persons who can bid on the property, and establishes permissible alternatives where prohibited by local ordinance or regulation (e.g. California cities and counties that have enacted such ordinances). The statute does not set standards for conducting the auction, but in any event, a court may invalidate a sale where it has not been conducted in a "commercially reasonable manner" (Section 2328 (f)). For example, if a facility operator conducts the auction "behind closed doors," such that only a few select people (e.g., bidders from competing storage facilities) know about the auction, the court may very well award a judgment to the tenant after the tenant shows the auction did not meet California’s reasonably commercial standards. This is even more likely to happen in a Self-Storage Association member state or city that is a "prohibited state/city" as described above. Any facility in those states/cities should consider whether to opt-out of such statutes by posting conspicuous notice, as discussed above.
Section 2328 also requires the storage facility operator to certify in writing to anyone who tenders payment in full for the amount of the lien within 30 days after the sale, that it has received no further rent, conversion, fees or costs in satisfaction of the lien, thereby allowing the operator to continue to make the contracted-for rental space available for use.
In addition to the delinquency of rental charge, Section 2328 (a) (4) allows lien to be collected for "all other charges, however denominated, in the rental agreement and for actual necessary expenses incurred." These charges typically include all late fees, labor to remove the property, advertising fees to perform the lien sale, auctioneer fees, etc. Section 2328 (c) (1). The law also provides that, after deduction of such charges, any excess proceeds remaining from the auction are held until demanded by the tenant, who must collect within one year of the date of the sale. Section 2328 (e) (1) and (2). If the owner receives notice that a lease payment was dishonored for non-payment or non-sufficient funds (Section 51150), Sections 2328 (a) and (b) mandate that the lessor must give the lessee written notice that the payment has been dishonored, and payment of the lessor’s costs for collection is due. The lessor must give notice of all dishonored check fees and late fees set forth in the lease. Finally, the fee for dishonored checks is expressly limited to twenty dollars ($20) per check. At no time during this process should a facility agree to accept anything other than cash or debit/credit card payments for delinquent charges or to auction proceeds that are being used to pay for such charges.
Tenant’s Rights and the Law
California law grants tenants of self storage facilities with rights and protections in regard to the enforcement of liens on the personal property that is stored in the units. After the facility has foreclosed on a storage lien, the tenant has possession, and the lien is extinguished.
A tenant may contest the validity of a lien by filing a lawsuit against the facility owner within 90 days of its enforcement, advising the facility of such action. If the action is proceeding within 90 days of the enforcement of the lien, the court may issue a lien release order, if the tenant establishes all of the following: Tenants are also protected in instances where the facility seeks to have the court appoint a receiver for sale or forfeiture of the personal property, with the tenant’s property protected after 90 days of the court’s approval . Additionally, liability for personal injuries that are caused by the tenant’s property may not be passed on to the tenant. If a facility re-entered the tenant’s storage unit to enforce its lien, the court may order the facility to pay damages in an amount not less than $500 to the tenant, where personal property not claimed within 30 days of the return of court service to the tenant bears a danger of causing waste or harm. If the facility fails to comply with the law, the tenant may be able to get damages as a result of the enforcement of a lien that was unlawfully enforced.
Avoiding Trouble: Owner Tips
Common mistakes that storage facility owners make with lien processes include:
- Failure to list tenant information correctly in pre-lien letters.
- Mistaken assumption that providing pre-judgment and pre-sale notice is as simple as sending a letter.
- Ignoring the requirement that notices contain specific language.
- Assuming that posting notices at the storage complex is sufficient to meet the statutory notice requirements.
- Incorrectly calculating the date the notice is "sent" (which is critical to determining how many days give the tenant to pay back rent before the unit can be sold).
- Not placing advertisements in a newspaper of general circulation in the area (which must run for the beneficiary of a lien to be able to sell the items after the full notice procedures are complete).
- Failing to call and get a bid from one or more auctioneers to sell the items at the storage place per the written contract.
- Failing to comply with any contractual notice requirements.
These common pitfalls can be avoided by staying abreast of the current holdings as to when property is foreclosed, as well as the subsequent actions that must be followed by an owner to satisfy the statutory requirements and protect the facility owner’s interests.
Recent Amendments and Changes
As with any legal matter, it is essential to keep abreast of recent changes, as these will impact compliance and enforcement actions both within and outside of the state of California. The most recent common changes are as follows:
As of January 1, 2017, Governor Jerry Brown signed into law AB 2014, which affects the California Self Storage Facilities Act (CC Section 21702). The bill:
adds Sections 21702.5 and 21702.6 to Article 5 of Chapter 10 of Division 8 of Title 2 of Part 4 of the Civil Code to extend the statute of limitations for enforcing a lien from 3 years to 5 years after the latter of the date of default, or the date on which the default was due.
With the passage of AB 2014, a storage facility will now have 5 years to commence an enforcement action to collect on a defaulted debt, whereas previously they had only 3 years to do so.
Summation and Notes
In conclusion, understanding California self storage lien laws is essential for both storage facility owners and tenants. Failure to comply with these laws can lead to legal disputes, costly mistakes, and a tricky road to follow when attempting to reclaim your lost items. Whether you are a facility owner seeking to enforce a lien or a tenant facing foreclosure, familiarizing yourself with the legal requirements surrounding storage unit auctions and foreclosure liens goes a long way in ensuring a smooth and fair experience for all parties involved .
Key Takeaways:
These key takeaways highlight the critical aspects of California self storage lien laws that both facility owners and tenants should be aware of:
A thorough understanding of California self storage lien laws is the best way to make sense of the entire process and get the most out of the experience. From foreclosures to notices of sale and the auction itself, these laws are far from convoluted when you understand the relevant requirements and expectations.