2016: An Off-Year

Posted by msmessenger on Jan 1, 2017 12:00:00 AM

The Slow Moving Legislative Agenda

Although the phrase “legislative activity” could be considered an oxymoron, 2016 was by most standards even quieter than normal. That’s not because there weren’t important issues that needed to be pushed forward, but due to the phenomenon of most state legislatures not being in session every year such as 2016.

“Election years are quiet years because a third of the legislatures don’t entertain new bills and some do not have legislative sessions,” observes Carlos Kaslow, general counsel to the Self Storage Association.

Then there is the issue of progression. Sometimes it takes multiple years to get a bill passed.

“A bill may be introduced, but it goes through a two-year legislative session,” says Scott Zucker, an attorney at Weissman Zucker Euster Morochnik PC in Atlanta. “Then you have this natural off-period in the legislative process. This was an off-year.”

To which Zucker adds, “the Self Storage Association has worked through most of the top 15 or 20 states and now is working with less populated states and a few larger states where there are still outstanding items on its legislative agenda, but the volume of the legislature activity is not as great.”

2016 Overview
This isn’t to say the Self Storage Association wasn’t busy. According to Marcus Dunn, director of Government Relations at the association, “last year we hit 13 states with varied success. Typically, we have seven lien provisions we try to enact in every state plus legislation on limited lines insurance. These all speak to the issues of options, standardization, modernization, and legal protection. Many states have not touched their laws since the 1980s, if they have touched on them at all.”

In 2016, the Self Storage Association had success with lien laws in Delaware, pursued insurance in Pennsylvania and Massachusetts, implemented lien provisions in New York, and passed limited lines insurance in Michigan and Missouri.

“The law in Michigan now allows a self-storage facility to sell stored-property insurance,” explains Bill Sheffer, executive director of the Self Storage Association of Michigan. “It’s defined so as to allow insurance for loss of personal property not exceeding $10,000, located in a self-storage facility that is provided under a group or master policy issued to a self-storage facility for the provision of insurance to customers.”

Basically, the law says that when a potential customer comes to the self-storage facility and wants to rent a unit, the same customer has the ability, for a monthly fee, to have the contents insured up to $10,000.

These laws are not always easy to pass.

In Michigan, the first push-back came from the state’s Department of Finance and Insurance. Its argument was: Why can’t an insurance agent sell this to customers who want and need insurance? The state self-storage association polled insurance agents across Michigan and found no one wanted to take it on because there was no financial benefit since the amount of compensation from selling the insurance was minute.

“Nobody would want to write the insurance although they wanted to protect their ability to write the insurance,” says Sheffer. “We got around it.”

The bill sailed through the pro-business legislature in Michigan, but at the last minute the governor vetoed it. “We had to go back to the governor to explain our positions,” says Sheffer. “The second time it flew through the process with flying colors. It passed in May this year.”

Tenant insurance or limited lines insurance is definitely on the agenda of the Self Storage Association.

“We want to make safe options for operators to offer tenant insurance at the point of sale,” says Dunn. “The tenant comes in, gets the box, and gets the insurance; the tenant gets everything at the same time, paying the insurance premium with the rent. Legally, we feel it is better to have all that in statute. With states that don’t have legislation to codify that, it is kind of a gray area and we’d rather not expose them to that.”

In 2016, the limited lines license was the issue that got accomplished more than anything, says Jeffrey Greenberger, an attorney with Greenberger & Brewer LLP in Cincinnati.

“For 50 years, if you went to the airport and rented a car, someone in a yellow vest would offer insurance on the rental car,” Greenberger points out. “There have been exclusions for these policies where you are not advising the customer as to what to buy but are just offering them a pre-selected policy they could have if they wanted it. That was the group enrollment exemption. That’s what the self-storage industry did for years; it operated under the group enrollment exemption.”

About 23 states now have this limited lines license statutes (or exemptions) with Missouri, Louisiana, and Michigan coming aboard this year, says Greenberger.

Wins For Louisiana
One state that passed an insurance licensing bill in 2016 was Louisiana. That was in addition to a lien law reform bill.

“Louisiana was probably our champion in 2016,” says Dunn. “We focus on seven lien provisions, and in Louisiana we got six of the seven enacted, plus limited lines insurance.”

Louisiana was one state that made other substantive legislative improvements in 2016, as many codified procedures were outdated and costly.

“In Louisiana, when you had a default, you had to send a full copy of the rental agreement to the tenant, which was expensive in postage and administrative costs,” says Greenberger. “That went away.”

Greenberger ticks off the pluses for Louisiana’s legislative success: Louisiana has added verified mail or electronic mail rather than certified mail; actual receipt of the notice is no longer required; advertising has dropped to one time instead of two; towing is allowed after 60 days for vehicles and water craft rather than trying to sell; and reasonable late fee has been added, as well as protection to a maximum value of property as stated in the rental agreement.

Insurance Woes
Insurance issues crop up unexpectedly. Although Kaslow cautions this is not a legislative situation, he talks about a California issue that recently came up out of the blue.

The California Department of Insurance changed its interpretation of a law that had been in effect since 2005. What it dealt with was the errors and omission insurance requirement for operators who held the limited insurance license in California and were organized as a limited liability company.

“For the first decade after passage of the limited licensing law, the state did not have an E&O insurance requirement for LLCs. The Department then decided its interpretation of the insurance licensing law was wrong after a decade,” he says. “It affected a small group of California self-storage operators who had a license, offered rent insurance, and were organized as an LLC. If they weren’t an LLC, this didn’t apply to them. The reinterpretation of the law required them to get an E&O policy, but the department has granted two extensions at the requests of the SSA. The last extension expired on Oct. 31, 2016.”

Even operators using protection plans are not exempt from problems. The protection plan solution proved problematic for a storage operator in San Diego, which has resulted in a class action lawsuit.

“This is a lawsuit that has been going on for several years,” says Kaslow. “It is a class action lawsuit against a storage operator in the San Diego who offers a protection plan. The lawsuit alleges the protection plan is insurance, therefore, in order to do this, the operator must be licensed as an insurance company or have agency licenses. The counter argument is: no, this is not insurance; it is a direct assumption of liability by the facility operator pursuant to the rental agreement.”

The trial court and court of appeals agreed with the storage operator. It is now before the California Supreme Court because it deals with insurance.

It is not the only lawsuit being watched.

Late-Fee Litigation

In New Jersey, a class action lawsuit was started against Sovran Self Storage, Inc.

“This is a very watchable case,” warns Greenberger.

A number of years ago, most of the REITs imposed various fees on various dates as an occupant failed to pay rent, i.e., on this day the tenant got a $20 fee for letter, a $20 fee for the lock-up, a $50 fee for advertising, etc. The REITs changed that to say, on a certain day late the tenant ends up with a lump sum fee (such as $200) to cover everything moving forward. The question raised in the lawsuit is: If the day after the facility imposes the fee and the tenant sends a check, does the tenant get any of that money back? The answer from the REITs has been no.

“The REITs are being sued because that response [the REITs are not charging the fee when the services are actually incurred] allegedly violates New Jersey consumer protection laws. They are charging the fee but not refunding if those services don’t actually happen,” says Greenberger. “This is one issue that seems to have traction; and it exposes all the REITs in our industry if they are wrong. It could be a big dollar result.”

New Year, New Laws?
Despite the legal distractions, and because of 2016’s relative low level of activity, 2017 promises to be a much more active year. Beginning in the autumn of 2016, a number of states began to plan for battle, eyeing the new legislative sessions cranking up for 2017.

“We didn’t have a whole lot going on in 2016, but we are watching a few things,” says Melissa Roberts, administrative director for the Tennessee Self-Storage Association. “We revised our lien law back in 2011 and did a fantastic job. Six years later, we are looking at possible modifications for further improvement of the law.”

In particular, the Tennessee Self-Storage Association would like to address online auctions and newspaper advertising. 

“Our legislative team is looking at a few different options for 2017, for what we may want to pursue,” says Roberts. “We still have newspaper requirements in our lien law. That was one thing we left in back in 2011 because we had so many other changes that we did. Changing that is something we have tossed around for a couple of years.”

Of specific interest is an online auction option.

“The way our law was written back in 2011, that was before online auctions existed, it specifically says the sale is going to take place on the property,” Roberts explains. “We need to change the wording to make sure that we leave it open for online auctions to take place, because right now it could be read that they are not allowed.”

In September, the Texas Self-Storage Association signed a legislative alliance agreement with the Self Storage Association, but that landmark tie-in comes too late to really crank up the process for 2017. “We have a long list of goals that we will probably pursue in the following session because some of those things require a long ramping up period,” notes Ginny Sutton, executive director of TSSA.

For 2017, the TSSA will be working toward just one legislative goal: getting online auctions incorporated into its statutes.

“That’s the main thing,” says Sutton. “The Texas legislature meets every two years, so you have to very careful what you ask for; when you have a great statute like we do, you don’t want to open it up to too much scrutiny. A lot of Texas operators already conduct online auctions. However, until that is statutorily allowed, we feel there is still an implied risk that someone can challenge it through case law.”

The only other issue on the wish list is towing, but TSSA will back into that space. “We are hoping to find a bill that someone else is introducing,” says Sutton. “We’ll work with them to get a statute allowing the towing of vehicles when the owner has stopped paying.”

The one state that appears to be gearing up the most for 2017 is California. Along with the national self-storage organization, the California Self Storage Association recently interviewed a number of lobbyist firms.

“We want to establish a long-term relationship with somebody in Sacramento who can help with continued efforts to amend state lien statutes along with other things that come up,” says Erin King, director of the California Self Storage Association. “Sometimes things come up, such as with the newspaper industry, and we want to make sure we have folks on the ground protecting our interest.”

This isn’t to say the California association doesn’t have an agenda for next year.

“It is very important that we introduce a bill in 2017 to amend the state lien statutes, including the newspaper requirement, that is, storage operators publish in a newspaper of general circulation for two weeks prior to the sale,” says King. “We would like to see an option for those advertisements to be published online, eliminating the newspaper requirement, or having one week of publication.”

The association would also like to have language inserted into the statute that allows customers to opt-in for email notification. “Not all customers want notices of lien sales sent to them with that more expensive certification of mailing,” says King. “To be able to opt into email would be friendlier to the consumer as well as streamline the communication process for the business owner.”

Finally, the association wants to be able to have self-storage owners publish their auction advertisements online as well and make some small changes to the language on the declaration in opposition to lien sale.

As Zucker stresses, “Every legislative change that is won has a direct economic impact to a self-storage operator. Whether it’s late-fee changes, limitation on value provision, limitation due to loss or damaged goods, emails instead of certified mails, it all goes to reduce the cost of lien sales which reduce the costs to both the operators and the tenants. It also protects the owner’s business from litigation.”

Steve Bergsman is an author, journalist, and columnist. His stories have appeared in more than 100 newspapers, magazines, newsletters, and wire services around the globe; his most recent book is “The Death of Johnny Ace.”