So, I Bought an Existing Facility - Now What?
By Scott I. Zucker, Esq.
The transactional side of purchasing a self storage facility combines the unique aspects of buying real estate (including the typical elements of property due diligence such as title, survey, maintenance and environmental inspections), with the purchase of an ongoing business (with the typical the elements of a rent roll, lease audits and inventory). If that doesn’t make the acquisition already weighty, a self storage purchase must also address the eventual transition of “management” from the prior owner to the new owner. As part of that transition there may be different fees, rules, insurance or protection programs and undoubtedly a new rental agreement. Handling this transition, from old owner to new owner, and managing the communication with existing tenants, can be an interesting challenge, both from a marketing perspective (to keep your existing tenants happy) as well as from a legal perspective.
Likely one of the most difficult issues with new ownership is the effort to impose a new rental agreement on existing tenants who may have signed an earlier rental agreement with the most recent owner or maybe even with a previous owner. Unless an effort is made to transition all existing tenants to the same equal terms and conditions as those used with incoming new tenants, the management is left to govern its facility using different rules for different tenants. Since self storage tenants don’t reside on the premises, it is typically not an easy task to track down existing tenants and have them sign a new rental agreement. Fortunately, a lot of this stress has been relieved with the advent of e-mail and electric signature contracts. This way a new facility owner isn’t obligated to get a wet ink signature but could essentially e-mail a customer that is on an old lease and have them quickly and easily e-sign the current lease.
A simple and successful approach to using this e-sign method for an existing tenant is to communicate the need for the tenant to provide the facility with updated contact information, emergency contact information and even updated payment information. The logical need for these updates can be a perfect time to introduce an existing tenant to the new lease and ask their cooperation to “click and accept” the new lease. Keep in mind that with any changes made from an old lease to a new lease, the tenant should be given notice of any specific changes in the terms and conditions and should also be given at least thirty days (until the start of the next monthly term of their lease) before the changes become effective.
Inevitably there will be situations (albeit frustrating) where no matter what your efforts, you do not hear back from an existing tenant and even though they may continue to regularly pay their monthly rent, they refuse to sign a new rental agreement with you (sometimes out of principle, sometimes out of laziness). In such a situation, what are your options?
Of course, from a legal perspective the best-case situation would always be to get a signature (even an electronic signature) to the document itself. Lacking that, a facility operator dealing with a non-responsive tenant could elect to terminate the ongoing tenancy if the tenant refuses to sign the ongoing lease. Another option might be to send the tenant a clearly written notice that the tenant will be bound to the new terms and conditions that have been provided (after the thirty-day effective date) if the tenant continues to use and occupy the rented space. If this approach is taken, it will be very important that the notice letter is clear about the enforcement of the agreement after the thirty day period and also crucial that the notice either include a copy of the new lease or a summary of the relevant and significant changed terms. One of the ways that this enforcement provision can be most effective is if the old lease contains some existing language about the landlord’s rights to update the terms and conditions after advance notice. A common type provision might read as follows:
Changes. All items of this Agreement, including, but without limitation, the monthly rental rate, conditions of occupancy and other fees and charges are subject to change at the option of the Owner upon thirty (30) days’ prior written notice to the Occupant. If so changed, the Occupant may terminate this Agreement on the effective date of such change by giving the Owner ten (10) days’ prior written notice of termination after receiving notice of the change. If the Occupant does not give such notice of termination, the change shall become effective on the date stated in the Owner’s notice and shall thereafter apply to the occupancy hereunder.
Just like with changes in rental rates and other fees, these change notices may be the only way, in certain circumstances, to deal with substantive changes for existing tenants. With acquisitions, the hope is that the existing tenants will be a positive part of the deal, not a frustrating part.
Stay Safe and Happy Storing!