The Best Way to Handle Tenant Delinquencies
In a perfect world, tenant delinquencies would not exist. As a self storage owner, you would never have to make collections a part of the daily routine. You wouldn’t have to send payment reminders and educate yourself on self-storage laws relating to collections, to say nothing of your lost sleep because delinquencies are shrinking your income. Unfortunately, we’re not living in a perfect world, and delinquent tenants will be an ever-present problem.
Here at Pinnacle Storage Properties, we know that, despite what many owners/operators think, the success of your self storage facility is based on income, not occupancy. A unit that is leased to a tenant that is not paying is not producing income. In fact, you’re losing income because you can’t rent that space to another customer. Another key point to remember is that a high delinquency rate can negatively impact the value of your facility if you ever want to refinance or sell your property.
Your goal should be to keep your delinquencies low and collect what your company is owed.
Handling Tenant Delinquencies
You must have a signed contract before your customers move their items into your facility. States differ on what needs to be covered in the rental contract; nevertheless, the contract needs to be clearly understood by the renter. Your tenant should understand the day rent is due, the date it becomes late, and the amounts of late fees. If your tenant isn’t comfortable with certain sections of the document, he or she should seek legal counsel prior to signing.
Keep up on the latest lien laws. Be sure that you’re following the rules as dictated by your state so that you don’t get involved in an unnecessary, expensive, and time-consuming legal battle. Your attempts at debt resolution must comply with your state’s self-storage laws.
When you’re ready to start the collection process, the tenant needs to be notified at least the minimum amount of times required by your state. Educate your tenant on the amounts of the fees and when they will be applied. Additionally, it’s important for your renter to understand what will happen if access to the unit is revoked. To resolve the problem for yourself and build a good relationship with your tenant, the objective should be to help your tenant make payment, not to collect fees or sell the unit at auction.
Follow these guidelines:
- If a tenant doesn’t respond to one method of communication, use another. Send letters, make calls, and send emails. If the tenant has previously agreed to text communication, you can also go that route.
- Make it easy for your customers to get their rent to you. Provide them with options to pay online, over the phone, in the office, or through a drop box.
- Make your communications personal. Indicate that you want to help, not just collect on a debt. Explain that you’ve been unable to reach them and are worried about the unit being sold at auction.
- Get in touch with any alternate contacts listed on the lease agreement. Be cautious about sharing specifics. Tell whoever you speak to that you’re trying to reach the tenant and request that they pass on a message.
- Make collection attempts at regular intervals, based on your state’s self storage laws, until the debt is paid or the unit is auctioned. Know your limits, and record your attempts in your management software.
Inevitably, your delinquent tenant will request that you waive the late fees. Some operators will waive one fee per year, while others won’t waive any. Whatever your policy, be sure that your staff and your tenants clearly understand and abide by it.
In the long run, it may help your business to make a deal with your tenant. Even if the space goes to auction, only a fraction of your debt may be recovered. If you don’t like the idea of making deals, consider this: as long as the unit is in lien status, a new customer that will actually pay for the space can’t move in. The following deals may work to get this problem resolved.
- You can accept a percent of what is owed, giving the tenant a short timeframe in which to remove his or her belongings. This way you can make the space available to a paying customer.
- If the tenant is truly unable to pay, you can use an abandonment form, in which the tenant signs his or her belongings over to your business. You can then dispose of the items as you see fit.
Your best alternative is to be proactive in preventing as many delinquencies as possible. Have clear policies in place so that customers understand when rent is due and when late fees will apply. There will be a number of tenants who find these dates confusing and need clear explanations of due dates and fees. Encourage tenants to use autopay as a convenience to them, and send reminders if a tenant is consistently late with payments.
Whatever you decide to do, stay current on your state’s self storage lien laws and consult an attorney to be sure that you’re actions are within the law.