Overview of Storage Lien Laws in California
Storage lien laws provide a legal framework for storage facilities and self-storage facilities that allow them to retake the possession of property rented and/or stored in a storage facility under certain circumstances. The strict enforcement of these laws is necessary to maintain the integrity of the lien, and to maintain a landlord’s right to collect the money he or she is owed.
A storage lien law grants a storage facility or self-storage facility the right to assert a lien over any personal property stored by an individual or business in their facility . Before collecting on the lien, a storage facility generally must give notice to the person who stored his or her property in the facility. If the person fails to pay the required rent and/or fees, once the grace period is expired, the storage facility can sell the property.
The documents governing the lien itself are usually contained in the rental agreement (which is also the lease) entered into between the tenant and the facility.
The Legal Basis for California Storage Liens
A storeroom proprietor’s lien is governed by the California Business and Professions Code. The Code sets forth everything from the definition of a "stored item" to the process by which, and applicable time frames for, the storeroom proprietor to seize goods and notify the owner of his or her intent to sell the goods at public auction. After 35 days from the date of service of the lien, if the lien is satisfied, then "[u]pon demand" by the lien claimant, the stored items shall be released to the lien claimant "without legal process." The above-referenced provisions have been California law for many decades. However, on January 1, 2013, the California Legislature amended Section 21700 of the California Business and Professions Code as it relates to admission reports/deliveries and allowed for telephonic or electronic reporting under certain circumstances. In Amended Section 21700, California Business and Professions Code sections 21705 and 21706 allow for records to be kept in an automated recordkeeping system, rather than a written report-if the stored items are delivered to the lien claimant via a third-party prior to the lien claimant asserting a lien. The lien claimant must also maintain a copy of the lien claimant’s agreement with the third party regarding delivery. And, if record keeping is solely a verbal process, lien claimants must keep records of the date and at least "the name of the person" who made the request for delivery. Further, on January 1, 2020, another amendment to Section 21700 of the California Business and Professions Code became effective, which permits a lien claimant to settle a lien dispute.
"(I)f the lien claimant enters into a settlement agreement with a lien debtor who claims either of the following, and the settlement agreement is reflected in a written agreement, both the settlement agreement and the written agreement shall be attached to the form required pursuant to subdivision (b) of Section 21726."
However, these two amendments to Section 21700 do not invalidate any lien claim as being invalid or void. On January 1, 2021, another amendment to Section 21700 of the California Business and Professions Code became effective which was aimed at COVID-19-related payment issues, including the waiver of late fees for nonpayment of rent, monthly extensions of time to pay the fees.
How to Exercise a Storage Lien
When an occupant does not pay the rent due on a leased space, or when an occupant rents space in which he or she stores an item that has become a nuisance (such as a dead vehicle), or when the space rented to an occupant is needed for another purpose, it may be necessary to sell the occupant’s property over a period of time to recoup lost rent or make room. California law permits such sales, commonly known as "self-storage lien sales."
California storage facilities are subject to the California Self-Service Storage Facility Act (the "Act"), Civil Code section 21700, et seq. Prior to enforcing a lien, the storage facility must send the owner a notice of lien via certified mail, return receipt requested. Notices of lien must include:
The owner must pay the amount of the lien by certified mail, return receipt requested, within 14 days after the certified mailing of the notice of lien. If the occupant does not pay the amount of the lien within 14 days, the storage facility may then advertise and conduct a lien sale of the property.
The storage facility may advertise sale by publishing notice of the sale at least once in a newspaper published in the county in which the storage facility is located and once in a newspaper of general circulation. Both notices must be made at least 10 days prior to the sale. The notices must include the name of each occupant whose property is to be sold, the amount of the lien, the date and time of the sale, the address of the storage facility, and the address where the sale is to occur, and must also state that the property to be sold is being sold to satisfy a lien. The facility must maintain proof of publication of the sales notice for three months.
If a lien is satisfied, or a judgment is awarded in the enforcement of the lien, the storage facility must send to the occupant (or his or her representative) a bill of sale for the property sold and other evidence of the satisfaction or enforcement of the lien.
If the amount sold exceeds the lien amount, the storage facility may retain the extra amount for itself.
California storage facilities must comply strictly with the provisions of the Act. Property may only be sold if all procedural requirements have been met and in a manner that complies with the law. Otherwise, storage facilities may be forced to return the profits of their sales to the former owner of the property.
Storage Facilities’ Rights and Obligations
The operator of a storage facility in California must comply with strict rules for conducting a lien sale contained in the Commercial Code as well as general requirements imposed by California’s Unfair Competition Law. While this law contains explicit requirements for lien sales, it is often vague in other areas. The breadth of their rights and responsibilities as parties to a rental agreement are governed by their rental agreements with storage lien holders. This provides storage lien holders with further rights and obligations beyond those contained in the Commercial Code.
If the lessee defaults in payment on the amounts due under the rental agreement, and the lessee cannot be found after due diligence, the storage lien holder has the right to enter into the space and seize merchandise, a right that is limited to those goods sold during the same month. When the lessee cannot be located, the storage lien holder may notify the consumer by certified mail. If a lessee is located, the storage lien holder may enter the facility and remove a sufficient amount of property to pay past due amounts. If the lessee fails to pay all amounts due within 14 days of receiving notice of default, the facility is entitled to sell the property at public auction after placing an advertisement in a local newspaper for a period of two weeks prior to the sale.
Storage Lien Laws and Consumer Rights
Consumers have certain rights and remedies under California storage lien laws when their stored items are subject to a lien. When a storage facility intends to exercise a lien on a tenant’s property, the operator is required to send notice to the tenant that includes an explanation of the lien rights and procedures and informs the tenant that their personal property may be sold at public auction at a specified time and place.
The tenant has the right to challenge the validity of the lien. A tenant can object to the lien by filing a Petition to Determine Claim of Lien with the Superior Court. The petition must be filed within 90 days of receiving the lien enforcement notice. Unless the petition is filed, the tenant has 14 additional days to pay all past due amounts to redeem their property, plus a $15 lien processing fee and reimbursement for stored property costs.
If the debt is satisfied or the lien is paid, the lien is released. If the debt is not fully paid within 14 days after the lien enforcement notice is sent to the tenant, the storage facility may sell the property or any part of the property at public sale. The sale must be held at an auction that is open to the public. 30 days’ notice of the public sale must be provided to the tenant. The public sale can take place no sooner than 15 days after the notice of sale is given to the tenant. A sale may be conducted by any means, including publicly advertised and competitive bidding. The operator may buy the personal property, but only to dispose of it in compliance with applicable regulations.
If any surplus money remains after the lien amount and sale costs have been paid, the operator must pay that money to the claimant, who may file a court action to recover the funds. The storage facility must retain these surplus funds for six months following the sale. After that, the funds belong to the storage facility. If the sale fails to produce enough money to pay the amount of the lien plus the expenses of sale, the operator can sue the tenant.
Typical Disputes and Their Resolutions
Despite your best efforts, you may inevitably come across a situation where the lessee comes forward with a dispute prior to the scheduled sale. Common disputes include:
- Lessee claims that property is worth more than auction price – If you get an email or letter from a lessee stating that all of his property is worth $100,000 but you expect to get only $500, politely indicate to him that your duty is to sell at public auction and that you will do everything possible to maximize the sale amount.
- Lessee threatens you with a lawsuit – If the customer threatens legal action, it is important to notify your attorney immediately. California law is friendly towards storage facility owners and managers and favors quick sale of property in order to expedite the process to collect on non-paying lessee . California Storage Association recommends that all notices be sent to the lessee by certified mail with return receipt as well as posting notice on the unit door. Taking photos of the unit and area surrounding it before it is vacant is also helpful.
- Lessee claims you have lost or otherwise neglected his property – If the unit owner has stolen or damaged property, he is entitled to compensation and may be able to recover more than he would if you had simply proceed with the sale. All extra steps taken on your behest will be documented and will make it more difficult for a disgruntled customer to claim negligence or theft. As a general guideline, before anything is done with the property in a non-paying customer’s storage unit, detailed notes should be made about all descriptions of the property. Take photographs of any property of significant value for your records and consider documenting all relevant communications with the delinquent customer.
Practical Consequences of Storage Liens on Sale
Further, to satisfy the lien, the person having the lien may dispose of the property at public or private sale (i.e. an auction) at any time after such default. However, a lien claimant shall dispose of the property in good faith, only at such sale, which shall be conducted in a commercially reasonable manner, and in accordance with the requirements of the lien. Relevant for California landlords, CVC Section 21702, provides that if such personal property is sold at public auction, notice of such sale shall be published once a week for two consecutive weeks in a newspaper published in the county where the sale is to take place. Such notice may also be posted in three public places within said county, and if the sale is of personal property stored in a commercial establishment, such notice may be taped on the door of the commercial establishment. Should the storage facility elect to conduct a sale of the property at private sale, it would need to have a written agreement signed by the owner of the property giving the facility permission to sell the property. Finally, if the storage facility does not comply with CVC Section 21702, the sale is voidable at the instance of the owner of the property.
Tips for Storage Facilities and Tenants
Despite the black letter law requirements, practicalities can always apply. Like any other area of the law, it is still possible to find some common-sense practices that can help if you are an owner of a storage facility or if you rent at one.
Tips for storage facilities
Record all statements. Regularly send out invoices detailing each and every fee incurred by a renter. This applies in addition to any notice of default required under the law. Make sure invoices and past due notices reach the renter and keep records of delivery efforts. Send copies to your attorney.
Keep careful notes of all communications with a renter. Make sure you note dates and times, and always maintain a written record of the content of the communication.
Do not act unreasonably in dealing with your renter. Find better alternatives than self-help in reclaiming the property. For example, an enclosure on the outside of the property will help keep the property secure. Take your time, and act reasonably. There is no such thing as a "one-size fits all," but when it comes to enforcing the lien foreclosure process, there are a myriad of circumstances which would weigh into a court’s determination as to whether a facility owner was acting reasonably. Do not assume a court will think you acted reasonably by doing something that appeared reasonable to you.
Tips for renters
Keep excellent records of information provided to the facility as to where you can be served, including providing updated addresses and telephone numbers. If you give your ex-wife’s address, for example, the owner could serve you using that address and a court might find that to be sufficient.
Keep careful records as to when you paid your past due bill. If you intend to challenge a lien foreclosure, you’re going to need to offer proof which includes clear documentation of payment and the dates of the payments. It is also important to check that all payments are properly applied to your account.
If you receive something from the facility, review it carefully. Even if you disagree with something that is sent to you, keep records of all notifications. You may be able to send a letter disputing something in the notification, which a court will afford you the opportunity to do before matters escalate.
Recent Legal Updates and Cases
In the past few years, storage lien laws in California have been tested in the courts in a few interesting ways. While no drastic changes have occurred, it is still important for owners of commercial or retail storage facilities in California to stay abreast of any alterations in existing laws.
In HMH Engineering, Inc. v. Fred Borrell, Inc., the owner of a business took a security interest in the assets of one of its customers. The customer then failed to pay off the loan, and the owner sold the collateral secured by the loan under UCC provisions. Other material secured by the loan eventually ended up at a storage facility, and on February 5, 2012, the storage facility sent official notices to the previous owners, pursuant to Section 21700. Under the statute, the facility must send the notice within 14 days prior to the sale. The notices sent by the storage facility, however, were more than 90 days prior to the beginning of storage lien sale. The storage facility moved to strike all claims made by the owner of the assets on the basis that the owner failed to follow the timeline set out in Section 21700 and therefore forfeited its lien rights.
Because the storage facility and the owner entered into an agreement for rent, the court found that the owner had not abandoned its personal property and therefore Section 21700 should not apply. The agreements between the parties, as well as their conduct, indicated that the owner intended to leave its property at the storage facility. The court also found the timing was not unexpected because the owner was trying to regain possession of the property when the storage facility moved forward with the sale .
Similarly, in GEP Development LLC v. Amazon.com, Inc., the owner of a storage facility may have successfully avoided a sale by utilizing a clause in its rental agreement that required tenants to remove their property by a specific date. Amazon claimed that the storage facility attached liens to their property in violation of Section 21700. The court found that Amazon failed to show the reason behind the timing of the rent payments. As such, the storage facility did not need to send official notice prior to a sale. Because the owners of the property failed to move their property prior to the deadline, the court determined the sale was legitimate.
While the Holdings case did not directly involve any storage liens, the implications of the use of personal property as collateral in cases such as Holdings, in which the use of the personal property as collateral is extremely unlikely, provides for a more expansive bottom line.
The Holdings case involved a bank that sold notes to a third party and then sought to bring collection action itself. The court found that the bank had no standing to bring the action because it sold its notes prior to commencing actions against the respective debtors. The court ruled that merely assigning a note is not sufficient to assign the right to sue. The court supplied an example involving an assignor collecting notes on behalf of the assignee. Although the Holdings case did not directly involve any storage liens, the broad application in other contexts may result in storage lien holders being unable to collect debts or sell property as explained in the case above.