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Many
self-storage operators offer the use of a truck at move-in as an
incentive to prospective tenants. There are certain pitfalls and
issues of which owners should be aware before deciding to offer
this service. This column does not discuss whether you should offer
trucks from a national rental company such as U-Haul, Budget, Penske,
etc., but whether you should make a rental truck available to your
tenants. The most important issues to consider are how to handle
promotions, liability and insurance.
What
Are You Offering?
One of the most
important issues involved in offering truck rental is clearly defining
what you provide. I am reminded of a story industry-consultant Jim
Chiswell uses as his cautionary tale. Jim discovered one facility’s
Yellow Pages ad that read, “Free truck with move-in.”
Some smart-aleck went to that facility, rented a space, and started
giving specifications for the type of truck he wanted in exchange
for his move-in. Therefore, the first lesson is to be extremely
careful in how you phrase your truck offer.
The second important
lesson is to make sure your rules and regulations regarding use
of the truck are clear and in writing, and that you follow your
own rules at all times. Because rules apply to the use of the truck,
you must include the following statements in any advertising: “Certain
rules and restrictions apply. See management/facility office for
details” and “This offer is subject to withdrawal or change
without notice.” These are basic tenets of any advertising
that addresses the issue of truck rental.
Issues
of Liability
The problem with
the average move-in is people tend to trade beer and pizza in exchange
for assistance with their moves. As an owner, you give your truck—which
is likely three to four times bigger than anything the average tenant
has ever driven—to someone who has probably consumed a six-pack
while moving furniture. At the same time, it is impractical and
inadvisable to provide any driving instruction; because the more
responsibility you undertake to ensure a tenant can drive the truck,
the more liability you assume in the event of an accident.
While state law
generally says the liability for operation of any vehicle follows
the driver, not the owner, there are legal concepts, such as agency
and negligent entrustment, any lawyer may raise in a lawsuit to
imply the self-storage owner, operator, manager, etc., is responsible
for giving the truck to someone who did not know how to drive it
or may have been impaired during its use. Therefore, it is important
to ensure you have the best possible insurance, with the highest
possible limits and the fewest exclusions, to protect yourself and
your business.
Follow the rules
set by your insurance provider, for example, confirming the operator
of the vehicle has a valid driver’s license. Also, the size
of the truck you may lend varies from state to state and, in all
states, certain truck sizes require a commercial driver’s license.
Therefore, make sure the truck you have purchased or leased is legally
operable by someone with a standard automobile license.
Insurance
Unfortunately,
there appear to be few companies that will insure rental trucks
on behalf of self-storage operators, even though the liability follows
the driver. Nevertheless, insurance is available and, as long as
you can afford its costs (plural intended), you should generally
be well-protected.
When shopping
for insurance, you will need to ask the following questions: What
type of documentation does the insurance company require you, the
operator, to review and keep about the driver? Does the insurance
company require a photocopy of a driver’s license, motor-vehicle
background check and/or proof the operator’s license is in
good standing with the Bureau of Motor Vehicles? By the way, these
issues become extra-complicated when you are dealing with tenants
from out of state.
You also need
to understand how insurance deductibles apply. There may be more
than one. The deductible normally applies to the collision-damage
portion of a claim. Most insurance is set up similarly to that of
a car-rental company, which has insurance to protect itself from
liability arising from operation of the vehicle, including damage
to property and injury to others.
A second component
of the insurance covers collision damage to the actual rented vehicle.
This coverage is designed to be secondary to the driver’s personal
automobile insurance; but unlike with a car rental, it appears approximately
90 percent of all personal auto policies now exclude collision and/or
liability coverage when the insured rents or operates a truck. Therefore,
the secondary insurance coverage you think you are buying for the
operator/tenant often becomes the primary collision insurance, even
if the tenant has good, valid automobile coverage for his own car.
What does this
mean to you? There is a deductible that applies to these collision
policies. You certainly should be aware of it, because at the end
of the day, if your tenant causes collision damage to the truck,
the first some-odd dollars in repairs (whatever the amount of the
deductible) must be paid by your tenant before the insurance will
cover any portion of the claim. If the tenant is not solvent enough
to pay for that damage, the responsibility falls back on you. It
becomes your problem to recoup this money from the tenant.
If the truck
is a complete loss or severely damaged, the collision coverage will
cover its replacement or repair, minus the deductible. If the tenant
cannot pay the deductible, you will have to. Then there is the $300
damage to a side panel, $500 damage to the roof and $850 damage
to the lift-gate that quickly become your expenses if the tenant
is not willing to pay. This has caused many operators to become
creative in their policies regarding “free truck use at move-in.”
Some operators
charge an insurance premium in the form of a “collision-damage
waiver” to reduce (not eliminate) the tenant’s alleged
collision deductible. In theory, this fee builds up a reserve against
which you can pay for damages caused by tenants who are unable or
unwilling to pay. Keep in mind: This may be the unlicensed sale
of insurance. An operator should check with his own legal counsel
and insurance broker to determine if this plan is possible.
Other operators
have changed their policies so their truck rental is free for a
limited number of hours, then they impose a per-hour rental charge.
Usually, unless a large-dollar lease is being signed, the free period
is two to four hours, which is often insufficient for the job. In
this case, the truck provides revenue in hourly charges, which helps
defray the costs of the insurance, loss and damages.
In
Practice
I discussed this
column with Kirk Nash of Texas-based On The Move Inc., a supplier
of trucks and insurance for this type of business. Nash says 90
percent of collision-damage claims actually result from operation
by the facility owner or managers or their family members, not tenant
use.
Because employees
are accustomed to driving the vehicle—unlike novice tenant
drivers who are cautious—they tend to be more careless. The
majority of damage they cause is to truck roofs and sides; therefore,
operators must be certain the collision policy they purchase does
not have exclusions for damage that occurs from problems with height
or width clearance.
The standard
insurance policy from a company such as On The Move provides $5
million worth of liability coverage for damage or injury to property
or people while the vehicle is being used by a tenant. This insurance
solely protects the owner/operator of the facility. Again, ownership
should generally not be liable for injury or property damage; however,
it would be foolish not to have coverage for the facility in the
event the storage owner is sued and somehow held responsible.
As for collision
coverage, the amount you need depends on the value and condition
of the truck you are renting or lending. There is no set recommended
amount; however, it should be enough to cover the truck in the event
it is substantially damaged or lost.
Final
Considerations
You must understand
all the costs involved in lending trucks to tenants. First, you
will have a lease or purchase payment on each truck, as well as
monthly liability-insurance payments. You also assume the risk of
a tenant causing damage for which he cannot or will not pay. Determine
whether the cost of these expenses can be absorbed into money received
for use of the truck, or if the truck’s marketing value makes
it financially viable. From a legal standpoint, as long as you have
excellent insurance and follow the requirements of your insurance
company, you can provide this service to tenants without too much
concern.
Consistency will
be the key to success. Every customer must be offered the same terms
and conditions of use as any other using the truck. I am not suggesting
you cannot run occasional specials; I am saying everyone who qualifies
for a special should be subject to the same rules. You must know
the requirements of your insurance policy and follow them. Make
sure tenants properly complete all rental forms provided by your
truck-leasing company or attorney, and that they receive a full
disclosure of all costs. If you do all of the above, you should
be able to safely lend trucks to your tenants.
This column
is for the purpose of providing general legal insight into the self-storage
field and should not be substituted for the advice of your own attorney.
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