Self-Storage – Setnor Byer Insurance & Risk

Risk Transfers: Indemnification and Additional Insured Status

Risk allocation involves identifying who is responsible for what and for how much. In some cases, a contract requires one party to assume the liability of another party. These risk transfers are commonly found in construction and landlord/tenant agreements, and are becoming common practice in other industries as well.

Assuming responsibility for the acts of another is obviously a big deal. So it’s important to know the nature and extent of the risk being assumed, and to have a plan to pay in the event of a loss. At a minimum, this requires an understanding of indemnification and Additional Insured status.

Indemnification

An indemnification provision requires one party (the indemnitor) to assume the liability of another party (the indemnitee). In the event of a loss that is specified in the contract, the indemnitor agrees to compensate the indemnitee for their loss. It is important to understand that these provisions commonly require the indemnitor to assume liability that would not otherwise exist.

For example, construction contracts routinely include broad indemnification provisions that transfer liability for not only bodily injury or property damage, but also for pollution, design flaws, delays, and other perils not typically understood or contemplated by the indemnitor. Therefore, the indemnitor must understand all the risks being assumed.

Additional Insured Status

Insurance coverage may be available to cover those risks assumed (or transferred) by the indemnification agreement, and indemnitors may purchase insurance to finance these risks. On the other hand, indemnitees often request or require their indemnitors to not only purchase insurance, but to also name them as an Additional Insured on the policy so they can have direct access to benefits under the indemnitor’s policy.

Though Additional Insured status can be used to finance indemnification obligations, it is important to know that there are limitations. For example,

Additional Insured status only protects against losses covered by the insurance policy, regardless of what the indemnification agreement requires.
Indemnitees must satisfy the policy’s requirements, such as meeting the definition of an Additional Insured and having a written contract.
An indemnitee’s protection may be compromised by shared coverage limits and a lack of control over the terms and conditions of an indemnitor’s policy.
Certificates of Insurance cannot be used to create or modify coverage under an insurance policy, regardless of what they say.

Perhaps the most common and potentially costly problem occurs when an indemnitor assumes a risk that is not covered by their insurance. For example, a plumber agrees to indemnify a general contractor for economic damages caused by the plumber’s delay in completing the work. The plumber takes a week longer than expected to finish the job. The general contractor hires additional workers to make up for the lost week and sends the bill for the extra labor to the plumber. Under the indemnification agreement, the plumber must pay for the extra workers. Unfortunately, since there was no bodily injury or property damage to trigger coverage under the plumber’s general liability insurance policy, the plumber must pay the cost himself. Remember that Additional Insured status cannot be used to cover indemnification obligations that are broader than the insurance coverage.

Before signing on the dotted line, ask the following questions:

What are the terms and implications of the indemnification provision?
Is the indemnitor required to obtain additional insured status for another?
Is the language of the additional insured endorsement adequate, covering the indemnitor’s responsibilities or must additional measures be taken to ensure that contractual obligations are properly financed?

Given their significance and complexity, these questions should be discussed with your insurance agent or attorney.

Please contact us if you would like to speak with one of our Risk Management Professionals.

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Is Your Self Storage Facility a Hazardous Workplace?

The fact that self storage facilities aren’t typically considered dangerous workplaces doesn’t mean operators can be casual about workplace safety. According to the most recent statistics from the Bureau of Labor Statistics, of over 3 million private industry nonfatal reportable injuries and illnesses in 2013:

917,100 involved days away from work
327,060 involved sprains, strains and tears
170,450 involved injuries to the back
229,190 involved falls, slips and trips.

Though employees are the primary victims of poor workplace safety standards, self storage facilities also pay the price. In addition to direct costs associated with workplace injuries, self storage facilities may also incur a variety of indirect costs, such as:

Wages paid to absent injured workers;
Wages lost during work stoppages;
Administrative time spent by supervisors following injuries;
Costs to train replacement employees;
Lost productivity and opportunity costs;
Replacement costs of damaged material, machinery and property; and
Higher workers’ compensation insurance premiums.

Self storage facilities can avoid or at least limit these costs by making workplace safety a priority. The Insurance Information Institute suggests taking the following steps:

Engage Management and Employees. Workplaces are safer when management and employees collaborate. Though specific employees should be in charge of safety programs, everyone should be responsible for workplace safety.

Evaluate Workplace and Operations. Perform a comprehensive evaluation of the entire operation, including equipment and all workplace activities, to identify all hazards. Talk to employees about their safety concerns.

Mitigate Hazards. Identified hazards must be eliminated or controlled. This may require implementing new safety measures, changing workplace operations or repairing/replacing equipment.

Training. Employees should receive training about workplace hazards and safety. Training should be part of the onboarding process. Refresher training should be provided on a regular basis and as needed.

Review, Respond and Improve. Maintaining a safe workplace is an ongoing process. Safety programs must be reviewed regularly. Safety incidents should be used as an opportunity for improvement. Employees should be reminded of their obligation to report hazards and incidents so they can be addressed.

Creating and maintaining a safe workplace requires commitment and vigilance. Despite the extra effort and expense, self storage facilities are sure to benefit from an effective workplace safety program. For example, maintaining a safe workplace is the best way to control workers’ compensation insurance premiums.

Setnor Byer Insurance & Risk’s Self-Storage Insurance Program and Risk Management Group work closely with self-storage facilities throughout Florida and nationwide to profile risks, compare coverage options, and match our clients with an insurance program that meets their needs.

If you have any questions or would like discuss how our programs can help your organization, please contact us

Is Your Self Storage Facility Prepared for the Next Disaster?

Preparation is the key to surviving a natural or human-caused disaster. Nevertheless, a survey by the Ad Council found that 62% of respondents did not have an emergency plan in place for their business. Since up to 40% of businesses affected by a natural or human-caused disaster never reopen, self storage facilities intent on surviving the next disaster must be prepared.

Natural or human-caused disasters can affect a self storage facility’s operations and finances by disrupting critical business functions and processes. During and after a disaster, a self storage facility may experience:

Lost or delayed sales and income
Increased expenses
Customer dissatisfaction
Repair and replacement costs

To prevent or limit the damage from a disaster, the Federal Emergency Management Agency (FEMA) recommends developing a preparedness program using these five steps.

Program Management. An effective preparedness program requires leadership, commitment and financial support. Beyond any applicable laws or regulations that may establish minimum standards, each self storage facility must determine how much risk it can tolerate and take steps to minimize the likelihood of exceeding that risk.

A preparedness policy should be developed by management and distributed to staff. The policy should define roles and responsibilities. Select employees should be given the authority to develop the program and keep it current. The policy should also define the general goals and objectives of the preparedness program, such as:

Protecting the life and safety of employees, tenants, visitors, etc.
Protecting facilities, physical assets and electronic information
Minimizing interruptions or disruptions of business operations
Protecting the facility’s brand, image and reputation

Planning. Preparing for a disaster requires planning. During the planning process, self-storage facilities should consider all threats, not just those that are most likely to occur. Special attention should be given to threats that are classified as probable and threats that could cause injury, property damage or business disruption.

Implementation. Implementation of a preparedness program includes identifying and assessing resources, writing plans and developing a system to manage incidents. An effective preparedness program should address:

Resource and incident management
Emergency response
Crisis communications
Business continuity
Information technology
Training

Testing and Exercises. An effective preparedness program requires testing and exercises to:

Train personnel
Reinforce knowledge of procedures, facilities, systems and equipment
Improve individual and organizational performance
Identify strengths
Reveal weaknesses and gaps

Program Improvement. Self storage facilities must take advantage of every opportunity to improve their preparedness program. After an actual incident, a critique should be conducted to assess effectiveness. Lessons should also be learned from incidents occurring elsewhere.

An effective preparedness program can control a number of risks associated with natural or human-caused disasters. An effective insurance program is needed to protect against those risks that cannot be controlled. Since self storage facilities face unique risks, it helps to have an insurance program that is specifically designed for the self storage industry.

If you would like more information about protecting your self storage facility, please contact.

Is a Resident Manager Ideal for Your Self Storage Facility?

Resident managers are not as common as they used to be in the self storage industry. For some self storage facilities, however, a manager living on the premises may be the key to running a successful operation. Though cost is an important factor when deciding whether a self storage facility could benefit from a resident manager, other factors should be considered as well, such as:

Service: Automated facilities may not be enough to create an advantage over the competition. Depending on a self storage facility’s location or specialty, clients may want more than just an access code after signing a contract. Facilities with a resident manager can service clients in ways that others cannot. This is why the existence of a resident manager is often mentioned in promotional and marketing materials.

Security: Even with surveillance cameras and 24-hour monitoring services, it is difficult to deny that resident managers can make a self storage facility even more secure. Their presence alone will likely deter most criminals, and their response time will be quicker than even the fastest police departments.

Operations: Things can and often do go wrong after business hours. Leaking pipes and short-circuits are just two things that can cause significant damage if they are not discovered and fixed quickly. A resident manager can find and fix those problems that cannot wait.

Qualified Candidates: It’s not always easy to find and retain the right people. Providing prospective managers with a place to live may be just the perk required to hire and keep quality talent.

After evaluating all the pros and cons in the context of each facility’s own particular situation, an informed decision can be made about whether a resident manager could improve operations. However, before making a final decision, it is important to understand the ramifications of hiring a resident manager, particularly how doing so may create an unexpected relationship.

In addition to creating an employer-employee relationship, hiring a resident manager can also create a landlord-tenant relationship. While employers can often terminate employees at-will and without advance notice, the same cannot usually be done with tenants. Depending on applicable law, a self storage facility will generally be required to provide advance written notice to terminate the landlord-tenant relationship. As a result, a resident manager may be legally entitled to continue renting the property for a period of time after his or her employment has been terminated.

There are steps that can be taken to minimize the scope and impact of the landlord-tenant aspects of a resident manager’s employment relationship. For example, a self storage facility can address landlord-tenant issues in a written employment agreement or in a separate lease agreement. However, since specific legal requirements must be met, it is advisable to seek the advice of a locally licensed attorney.

As is often the case, it is necessary to understand the risks in order to control them. Since self storage facilities face unique risks, it helps to have an insurance program that is specifically designed for the self storage industry. If you would like more information about Setnor Byer Insurance & Risk’s Self Storage Insurance Program, please contact us.

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Vehicle Sales Can Be Risky Business for Self Storage Facilities

Dealing with delinquent tenants is an unavoidable part of operating a self storage facility. Strict legal requirements make enforcing storage liens and selling tenants’ property a risky proposition. The risk is even greater for those facilities that permit the storage of motor vehicles.

Unlike other kinds of personal property, certificates of title are used to establish ownership of motor vehicles. This means that operators of self storage facilities must take the right steps to make sure the certificate of title will reflect the transfer of ownership from the delinquent tenant to the buyer. Unfortunately, re-titling a vehicle may not be quick or easy, particularly because the process isn’t always obvious and it can vary significantly from state to state.

For example, Florida requires an Application for Certificate of Title with/without Registration, though this requirement is not found in the self storage statute. By contrast, California requires an Application for Lien Sale Authorization and Lienholder’s Certification, a Certification of Lien Sale, an Application for Title or Registration, a Notice of Pending Lien Sale, a DMV letter of authorization to conduct the sale, postal receipts of all notices sent, and a Notice of Transfer and Release of Liability.

The lack of a uniform process for re-titling motor vehicles means that operators of self storage facilities must refer to and abide by their state-specific laws and requirements. However, regardless of what the process involves, operators can still take steps to make things easier while reducing the risk. For example, operators can collect vehicle-specific information and documentation when the tenant signs the lease, such as:

Vehicle Identification Number (VIN)
Vehicle registration information
Copy of Certificate of Title
License plate/tag number
Lien and lienholder information
Name and contact information for all owners of the vehicle

Operators of self storage facilities need to understand the increased effort and risk that come from storing and disposing of motor vehicles. Various insurance options specifically designed for the self storage industry are available, such as Sale and Disposal Liability Coverage.

If you would like more information about Setnor Byer Insurance & Risk’s Self Storage Insurance Program can help protect your facility, please contact us.

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Self Storage Facilities: Protecting the Bottom Line

Most businesses rely on their facilities to manufacture products or provide services. In the self storage industry, the facilities typically are the product. If property loss or damage is not fixed quickly, the business may fail. Though most believe their self storage facilities are adequately insured against property loss or damage, many overlook Ordinance and Law coverage. This oversight can be the downfall of any self storage facility.

Ordinance and Law insurance is designed to pay the extra expense of rebuilding to comply with ordinances or laws, such as building codes, which did not exist when the building was originally constructed. Since the costs of improving a structure to bring it up to code are specifically excluded under most property policies, this coverage can be quite valuable.

An insured’s obligation to rebuild according to current and stricter codes is often triggered when an insured building experiences a covered loss, such as a fire or hurricane. Unfortunately, many insureds first learn of this additional obligation and expense after they experience a property loss. To avoid the burden of these additional rebuilding costs, self storage facilities can add Ordinance and Law coverage to their current property insurance policies. Doing so will generally cover:

Loss to the undamaged portion of the building;
Increased demolition costs; and
Increased costs of construction.

Since rebuilding according to current building codes may suspend operations for an extended period of time, self storage facilities can purchase Business Interruption insurance to cover reductions in net income caused by an inability to continue business operations. Since payroll, mortgage/rent payments, money owed to suppliers, taxes, and other continuing expenses must be met, Business Interruption insurance may provide badly needed capital when operations are suspended.

Combining Ordinance and Law coverage with Business Interruption coverage, self storage facilities increase the likelihood of surviving not only the initial property loss, but a protracted suspension of operations resulting from the obligation to rebuild in accordance with current building codes.

While the decision to obtain Ordinance and Law and Business Interruption coverage should be easy, understanding specific policy provisions and terms can be difficult. Since there may be variations among different policy forms, it is important that you consult with an experienced insurance agent to discuss your options.

If you would like more information about protecting your self storage facility or obtaining Ordinance and Law and Business Interruption insurance coverage, please contact us.

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Protecting Valuable Business Papers and Records

Businesses often prepare an inventory of valuable property to simplify the process of filing an insurance claim in the event of a loss. For some reason, papers and records rarely make the list, even though losing these documents could disrupt business operations. Fortunately, insurance is available to cover the unbudgeted and often significant costs of dealing with a loss of business papers and records.

Valuable Papers and Records (VPR) coverage is a type of property insurance that covers the cost to research, replace or restore information that is lost when papers and records are damaged or destroyed. This insurance generally covers papers and records owned by the insured or in the insured’s care, custody and control, and it is often found in property insurance and small business owners’ policies. Large or unique risks may require a separate, stand-alone policy.

Notably, since VPR covers the cost of reproduction, it is not intended to protect items that cannot be replaced or duplicated because they will only be valued at the cost of blank material of substantially identical type. So, if an original Declaration of Independence is lost, the insurer will cover the cost of a blank piece of paper. To ensure maximum protection, irreplaceable items must be listed separately under the policy and possibly appraised so their value can be determined. In some cases, a separate insurance policy may be necessary.

VPR coverage is ideal for most businesses, including:

accountants
law firms
architects and engineers
physicians and medical offices
businesses that regularly produce and rely on important documents, such as files, receipts, invoices, lists, contracts, etc.

When shopping for VPR coverage, it is important to know what the policy does and does not cover. Although definitions may vary, ‘Valuable Papers and Records’ are generally defined to include documents, manuscripts and records that are inscribed, printed or written, including abstracts, books, deeds, drawings, films, maps and mortgages.

VPR policies do not typically cover money or securities. Importantly, once papers and records are reduced to electronic format or saved on some form of electronic media (CDs, hard drives, tapes, disks, etc.), they are generally excluded from coverage under a VPR policy, and need to be insured under an Electronic Data Processing policy.

The cause of the direct physical loss or damage to the papers and records must be a covered loss under the policy. Losses caused by errors in processing or copying, earth movement, war, neglect, nuclear hazard and various events involving water are typically not covered. Since even the broadest policy forms have exclusions, it is important to review them carefully.

Coverage limits should be enough to cover the cost of replacing or reconstructing lost information through research or transcription from other sources. While VPR generally covers items kept at the premises listed on the policy’s declarations, papers and records kept at an unlisted location may be subject to a lower limit (sub-limit) or may be excluded from coverage altogether. Make sure the policy lists all locations where papers and records may be stored.

In addition to VPR insurance, businesses may consider storing papers and records in a facility with the reputation, amenities and expertise needed to offer maximum protection. According to Carlos Diaz of Value Store it, “Not all storage facilities offer a comprehensive approach to this risk. Not all solutions are the same.” Some additional services to look for in a storage facility include:

Professional and responsive staff
Physical features/amenities (fire and security system, climate control, etc.)
Experience in handling and storing similar papers and records
Comprehensive Solutions (digitizing, e-filing, bulk shredding, etc.)
Ability to comply with applicable laws (HIPAA, Gramm-Leach-Bliley, etc.)

Be sure to visit the storage facility and check references, and before moving in, confirm coverage by checking the VPR policy. If it has lower limits for papers and records stored off-premises or excludes coverage altogether, the storage facility may need to be added to the list of covered locations.

Though protecting against the loss of papers and records is rarely high on the list of priorities, it should be. Those who underestimate the importance of papers and records may one day recognize they are not just valuable, they are invaluable.

If you would like to learn more about protecting your valuable papers and records, please contact us.

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Insurance Designed for Self Storage Facilities

When considering insurance, owners and operators of self storage facilities often focus on traditional coverages despite facing risks that are unique to the self storage industry. As a result, some of the biggest risks faced by self storage facilities remain uninsured.

To avoid this problem, owners and operators should consider obtaining specialized coverages designed to protect against the risks that come with operating a self storage facility.

Sale and Disposal Liability Coverage

Sale and Disposal Liability Coverage will pay for damages caused by a self storage facility’s sale and disposal operations involving the lock-out, sale, removal or disposition of a customer’s property. Even if everything was done by the book, the defense coverage can be used to respond to frivolous lawsuits filed by tenants.

Customers’ Goods Legal Liability Coverage

Owners and operators of self storage facilities are usually blamed when a tenant’s property is damaged. Customers’ Goods Legal Liability Coverage will pay for damages to their property that occurs at the self storage facility and will cover defense costs if a lawsuit is filed.

Business Interruption Coverage

A temporary closure due to a loss does not mean that business expenses stop. Business Interruption Coverage can prevent a temporary shutdown from becoming permanent by covering reductions in net income and providing the funds needed to pay normal operating expenses. Extra expense coverage is also available to cover expenses over and above normal operating costs, such as temporary relocation costs.

Ordinance and Law Coverage

Building codes are regularly changed to improve a structure’s resistance to various risks. Ordinance and Law Coverage covers the extra expense of rebuilding to comply with updated building codes, which, in the case of older structures, can be very expensive.

Employee Dishonesty Coverage

It is estimated that employee fraud costs the average American business six percent of its total annual revenue. Employee Dishonesty Coverage, which is also known as Employee Theft Coverage, can protect a self storage facility from financial loss due to the fraudulent activities of an employee or group of employees, including crimes involving embezzlement and internal theft.

Hired and Non-Owned Automobile Coverage

Owners and operators commonly overlook automobile insurance simply because the self storage facility does not own a vehicle. But, what if the self storage facility rents a truck to pick up equipment or sends an employee on a business errand in the employee’s own car? Hired and Non-Owned Automobile Coverage applies to bodily injury or property damage arising out of the business use of a hired or non-owned automobile.

Equipment Breakdown Coverage

Equipment Breakdown Coverage a/k/a Boiler and Machinery Coverage pays the cost of repairing and replacing damaged equipment covered under the policy. Any resulting loss in business income, as well as additional costs incurred in trying to restore operations quickly, may also be covered under such a policy.

When shopping for these coverages, owners and operators of self storage facilities should consult an insurance agent with an established history of experience and expertise in the field of insuring self storage facilities. Otherwise a self storage facility may be left with costly duplicate coverage or dangerous gaps in coverage.

If you would like more information about how Setnor Byer Insurance & Risk’s Self Storage Insurance Program can help protect your facility, please contact us.

Florida’s New-Look Self-Storage Facility Act: Are You Ready?

In April 27, 2012, a bill amending Florida’s Self-Storage Facility Act (Act) was signed into law by Governor Rick Scott. The bill primarily implements changes to the notice requirements related to enforcing an owner’s lien against items stored in a self storage facility. According to the Self Storage Association, these changes could save Florida’s self storage industry more than $4 million annually.

Additionally, the bill provides that applications and rental agreements must include a provision disclosing whether an applicant is a member of the uniformed services. Consistent with the protection afforded some military personnel by the Servicemembers Civil Relief Act (SCRA), this new requirement is intended to help servicemembers avoid foreclosure of their stored property during a period of military service.

The bill, which becomes effective July 1, 2012:

Expands the definition of last known address to include the street address, post office box, or e-mail address provided by the tenant in a rental agreement or in a subsequent written change of address notice;
Deletes a provision which may have required a tenant to provide a new address to an owner by certified mail;
Removes the requirement that a tenant be notified of the owner’s claim by certified mail, and allows written notice of a pending sale of property to be delivered in person, by e-mail, or by first-class mail along with a certificate of mailing;
Provides that if the owner notifies the tenant by e-mail, a response, return receipt, or delivery confirmation from the tenant’s last known e-mail address is required for the notice to be effective; otherwise, the owner must send notice of the sale to the tenant’s last known address by first-class mail along with a certificate of mailing, before proceeding with the sale;
Deletes a requirement that a notice sent by mail must be “registered” in order for the notice to be presumed delivered when deposited with the U.S. Postal Service, thereby making any notice sent by mail, registered or not, is presumed delivered when deposited with the U.S. Postal Service;
Removes a reference to certified mail, thereby permitting an owner to notify the tenant or secured lienholders of any balance remaining from the proceeds of a sale of property by first-class mail along with a certificate of mailing; and
Requires contract rental agreements or applications for a rental agreement to contain a provision disclosing whether the applicant is a member of the uniformed services.

To take advantage of these revisions, owners and operators of self storage facilities should make every effort to obtain each tenant’s email address. Importantly, procedures should be implemented to ensure tenants’ email addresses are kept current. Those failing to do so will be unable to enjoy the benefits provided under the amended law.

Regardless of whether a self storage facility takes advantage of the new notice procedures, the new requirement for determining a tenant’s military status cannot be ignored. Far too many self storage facilities fail to determine whether a tenant is in the military service, and, consequently, they do not know whether the SCRA applies to any particular tenants.

Ignorance in this respect will inevitably result in violations of the SCRA, which can prove costly and embarrassing. Though some may find determining military status burdensome, in reality, this new requirement will benefit self storage facilities as much as their military tenants.

Oftentimes, there is a period of uncertainty following the enactment of a new law because many are unsure of precisely what is now required or permitted. Fortunately, the changes to the Act are fairly straightforward, so extensive confusion is not anticipated. Nevertheless, those who own or operate a self storage facility in Florida would be wise to seek advice if there are any doubts as to how the new law will affect their operation.

If you have any questions about the amendments to Florida’s Self-Storage Facility Act, or if you would like discuss how our programs can help you, please contact us.

Moving Up: Raising Self-Storage Rents

By Elizabeth Ferrin

Some self-storage managers have adopted a strategy of using sophisticated algorithms and demand analyses designed to maximize revenue when calculating their rents. This means that customers will receive a different rate for storing at the same facility. A customer who calls twice in a single day may receive two different quotes.

Though still limited in use, an increasing number of stores are reviewing and updating their approach to rental rates to maximize the bottom line. “Managers need to provide input,” says Brad North, president of Advantage Consulting & Management. “They need to give their opinion on what sizes should be raised and they need to shop around.

Shopping The Competition

Keeping tabs on the street rates and pricing policies of neighboring facilities is crucial to understanding where your rates fall in the marketplace. “You’ve got to look at the three-mile market surrounding your self-storage facility,” explains Ken Nitzberg, chairman and CEO of Devon Self-Storage.

He adds that in addition to rental rates, it is important to have some idea of the giveaways and move-in incentives being offered at all of the self-storage stores in the area. “Promotions have become almost a requirement to rent space in most markets,” says Nitzberg. “That’s been the most competitive piece in many markets across the country.”

It is also important for self-storage managers to have a good handle on the type of market they serve. “If your site is in a retirement area in Florida, your customers might call 20 different sites looking for the lowest price,” says Nitzberg.

Rental Rate Philosophies

When it comes to raising prices, there are a variety of philosophies that drive rental rates. Some storage businesses roll out an annual rate increase for every customer; while others look at each unit size individually to determine when and where to adjust pricing. Other facilities may reevaluate pricing only sporadically.

Since there is a level of apprehension that often accompanies a rate increase, North explains that he advocates managing rents selectively and adjusting rates only on a size-by-size basis. He uses a unit’s economic occupancy, which takes into account any discounts renters are receiving, as a guide. He uses an economic occupancy rate of 85 percent as a benchmark number to signal the need for a higher rental rate for that specific size. “Don’t think that because the competition increases rates on 10-by-10s that you need to do it as well,” says North. “It all depends on your occupancy.”

Annual Increases

Another strategy involves annually increasing rates across the board. “We raise rents on every unit each year,” says Brenda Scarborough, CEO of Accountable Management. “No one jumps up and down with excitement about it, but we’ve found that if we keep it small enough, everyone expects an increase.” She found that large, irregular increases are less accepted by customers and says she is now committed to yearly increases for all tenants.

On each tenant’s anniversary date, the computer generates a reminder about the new, higher rate that will be assessed going forward. “Unfortunately, many stores have reduced their rates in the economy,” says Scarborough. “However, we still have a small increase every year.”

Adjusting Street Rates

Many operators draw a distinction between street rates and existing customers, preferring to adjust rents only for new customers to keep current tenants from revisiting the necessity of maintaining a storage unit. “You won’t lose many tenants over a $5 to $10 increase,” says Nitzberg. “But, an increase makes customers think, ‘Do I really need this?'” He recalls a Self-Storage Association study which found that the sector’s single biggest competition was the dumpster.

Nitzberg warns against going toe to toe with the dumpster in the name of a small rent increase. “You don’t want to force tenants to make this type of decision based on $5. That’s why we tend to be more aggressive with new customers than existing tenants–new customers don’t know what the old rate was.”

Communicating Rate Changes

The most common way to communicate the increase is with a well written form letter on company letterhead. This keeps correspondence consistent and takes responsibility out of the hands of the manager, who can simply say, “This was a corporate decision. It’s out of my hands.”

It is also important to include a phone number or email address on the letter and invite tenants who are concerned about the new rate to get in touch with the facility. If and when a customer calls, the manager can then go over the new pricing, explaining that the store’s costs are also on the rise and that the higher rates are necessary for the storage business to cover its expenses.

Fearing Negative Feedback

Some managers also worry about potential backlash from customers who will be angry about the new rates. However, it is important to remember that those few angry customers were in the minority as the majority of tenants likely willingly paid the higher rate with no questions asked.

Some managers also worry that a drop in occupancy will accompany a scheduled rent increase, but managers need to remember that keeping a store as full as possible is less crucial than maximizing profits. “Occupancy is important, but revenue and net operating income are very, very important,” says Nitzberg. “I would rather be 85 percent full and have $1 million in gross revenue than 100 percent full and have $750,000 in annual gross revenue.”

Timing Rate Increases

Proper timing of rental rate increases can also make them more palatable for customers. Many suggest implementing higher rates when demand for self-storage tends to be highest. It can also be a good idea to roll out a new rate after the fifteenth of the month rather than the first so the facility is not competing with other monthly bills.

According to North, good communication and understanding is the key to a successful rate increase. When everything is done in order–meaning tenants are sent letters 30 days or more ahead of the rent adjustment explaining the increase–most rate changes are met with very few questions and very little resistance.

It is also important for the manager to understand and concur with the higher rental rates. “It’s the manager’s job to eagerly sell the rates and the manager is the single most important factor in the equation,” says Nitzberg, adding that a successful increase is the result of the combination of the right rental rate and an excellent facility manager leading the way.

From “Moving Up: Raising Self-Storage Rents” by Elizabeth Ferrin, a freelance writer based in Maple Grove, Minnesota, who is a contributing writer for the annual Self-Storage Almanac and other self-storage publications. This article is provided courtesy of Setnor Byer Insurance & Risk with the permission of Mini-Storage Messenger Magazine.© MiniCo, Inc. All Rights Reserved. It is not intended for further reproduction/distribution without the exclusive permission of MiniCo, Inc. http://www.ministoragemessenger.com