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ISSUE: Nov/Dec 2007
Auction Options
Can We Do That?
By Alta Walters and Tom Litton
Most states do not specify the manner of sale for self storage lien sales. In most states, the standard is that the sale must be “commercially reasonable.” But the industry standard is generally to auction by complete lot—that is, the entire unit as one sale. Mostly, this is done for efficiency and equality. If you decide to parcel units out piecemeal, it raises the issue that you should do this with all units or tenants are not receiving equal treatment on their sales. Some facilities do conduct small lot auctions; however, inquiry reveals that the time and effort in doing so usually doesn’t result in enhancing the total recoverable costs.
Therefore, the question turns more on the practical than the legal. Switching to a piecemeal auction may alienate your local regular bidders. If you still decide to sell items piecemeal, this should be done uniformly with all units.
Most state laws also do not prevent principals from bidding on units. (For an exception, see Washington state.) Note that some states require advance disclosure if a principal is to bid; and while employees do not technically have an interest in the auction outcome, they are the agents of the facility and should be treated as such.
Disclosure assures other bidders that there is no funny business in the bidding process. Sometimes it results in higher sale prices, however, because of an assumption that the employee/ owner has a better indication of what’s in the unit. Generally, we discourage managers from buying units because there is a temptation to engage in a used goods business on the side. This creates the general impression with the tenants that the facility wants their stored items.
Self storage rents space. That’s our mission. When managers bid on units, it creates practical problems with the tenants and with other potential bidders. Many companies perceive this as unethical and forbid the practice.
What about eBay auctions? You can sell units on eBay with some cautions. Obviously, you must still follow your state lien laws, especially in regard to the advertising of the time and location of the sale. If you include eBay bidders, mention that fact in your statutory ad. This should only be handled as a “live” auction on eBay so that no bids are taken until the posted time of the sale and thus, your local bidders can compete.
Since the tenant has the right to redeem the unit prior to sale, you can’t get binding bids in advance of the advertised sale. Related to this right, we are concerned about the privacy aspects of an eBay sale. Do not run personal information about the tenant in the eBay ad. Another problem with eBay auctions is logistics. If you are conducting by-the-unit sales, who will pack and ship a unit to an out-of-area buyer? What if an eBay buyer skips and doesn’t empty the unit? You have little recourse against an eBay bidder.
Remember, too, that opening the bidding up to eBay may discourage local bidders from showing up at your auctions. Storage operators need the auction process to clear out non-productive units. Local bidders are essential to that process, and they tend to be suspicious of any changes to the standard storage auction.
Employees bidding, eBay sales, and even selling separate items from a unit can make bidders uneasy. Make sure to announce clearly any changes you make to your auction process well in advance. Remember, your local bidders are a resource and should be welcomed to your auctions as the necessary part of the system that they are.
This column contains legal information that is generalized to illustrate legal principles and laws, but should not be substituted for the advice of your own attorney.
Alta Walters is an attorney based in Oakland, California, who has practiced self storage law since 1987. Tom Litton is President of Lodi, California based Litton Property Management, Inc., and a frequent contributor to Self Storage Now!
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