By Jim Clemmensen

Securing valid rental contracts with your tenant customers is essential in defining the agreement you have established with them. Additionally, in today's litigation-minded society, legally binding and enforceable tenant contracts may constitute your first line of defense in defining what terms and conditions were agreed upon between the two parties.

		You have recently purchased your facility from Jones Storage and have not yet obtained new tenant contracts reflecting the name of your business. Your tenant Fred Smith shares with you the excitement he has relating to the contents of his unit which pertain to his hobby. In your conversation, you learn that his contents include $100,000 of rare firearms and gunpowder for making ammunition. You tell Mr. Smith that your tenant contract forbids storing over $5,000 worth of contents without your permission, which you did not give, and furthermore forbids the storage of firearms and explosives. Mr. Smith points out that he has no contact with you, only the previous owner; therefore, he asserts that your contract provisions and rules are not enforceable for that reason.
		Sally Tenant comes to your office stating the tenant renting the storage space next to hers is living in his unit. He plays his television too loudly plus his smoking bothers her and makes her contents smell of smoke. You immediately contact the TV-watching, smoking tenant and point out that the terms and conditions of the tenant contract at your facility specifically forbid living in a storage space, operating any electrical appliances in the unit, and smoking in the space. He replies that he is under no such terms and conditions. You then remember that you did not enter into a contract with him when you purchased the facility. This tenant refuses to sign a contract on the spot without first consulting his lawyer and states that he plans to continue his activities. Meanwhile Sally Tenant demands payment to deodorize her contents. Since you have no contract with her either, you cannot benefit from the provision included in most tenant contracts stating that the tenant agrees to indemnify and hold harmless the lessor (your self-storage facility) from any damages related to storage. With these examples in mind, it is easy to see that having current contracts reflecting the proper name of your facility is critically important. We offer the following recommendations as suggestions to help you plan and address this issue:
		Consult with your independent insurance agent and attorney to review your current tenant contract for content as well as to ensure it is binding between your current business entity and current tenants. Determine if you can legally incorporate language in your contract that makes it binding on successor owners. If you choose to sell your facility in the future, this could be an attractive benefit for potential buyers. Make sure that all persons storing contents are named on the contract. Remember, if two people store items in a space, yet only one is named on the contract, then it is very probable the unnamed individual will not be legally bound by the agreement. In some cases, this may even apply to spouses sharing a storage space. In your consultation with your insurance agent and attorney, discuss any plans you have to purchase or acquire additional self-storage facilities so that you are able to execute new tenant contracts which will be effective on the closing date of those transactions. Consult your insurance agent and attorney to determine if you are required by local statutes, laws, or previous court decisions to have new rental contracts signed on a regular basis. Some jurisdictions may require that these types of contracts be signed on a regular basis rather than just one time. You should be aware of these provisions since failure to comply may render your tenant contract null and void after a prescribed period of time. Ask your insurance agent and attorney to pay special attention to the provision in your contract stating "the tenant agrees to indemnify and hold harmless the lessor [your self-storage facility] from any damages related to storage." We recommend that the indemnity provision be separate and distinct from the other contract provisions to make it conspicuous. Printing the indemnity provision in bold or red print can help it stand out. It's also a good idea to require the tenant to initial the indemnity provision with you as a witness. The reason for this concern is that courts commonly construe indemnity provisions strictly to be sure the parties who contracted for the shift in liability, as represented by the indemnity provision, fully understood the consequences.

Ensuring that you have binding, up-to-date, valid rental agreements/contracts is critically essential in today's litigious society. Any steps you can take now may enable you to better protect your business and may possibly increase the value of the property at the time of future sale, expansion, or acquisition.

Jim Clemmensen is Director of Insurance Operations for Phoenix-based MiniCo, Inc. MiniCo provides industry-leading specialty programs for self-storage businesses including property and casualty insurance and tenant insurance programs. For more information please visit www.MiniCo.com.