©TSSA
Fall/Winter 2013
Volume 9 • Issue No. 1
A Texas Self Storage Association Publication
Inside TSSA Legal Update Texas Credit/Debit Card Law ... 1-2 TSSA 2013 Texas Legislative Report ...3 Self-Storage Solutions ... 4-5 Smoke Alarms in On-Site Apartments ...5 Office-Warehouse vs. Self-Storage Leases 6 Eviction? Foreclosure? Abandonment? ... 7 Sales Tax on Parking ...8
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T
his article will summarize someof the more important provisions in a typical credit card merchant agreement, and some of the more impor-tant statutes regarding credit card use.
The “Lingo” and the Basic Transaction
A cardholder is simply anyone who uses a credit card. A merchant is any business entity authorized to accept credit cards. A merchant bank is the financial institution that contracts with your facility to accept credit cards for payment of goods and services. A card issuer is a financial institution that issues the card to your customer. Here is the typical chain of events when someone purchases with a credit card. The cardholder presents a credit card to pay for purchases. The merchant swipes the card, enters the dollar amount, and transmits an authorization request to the merchant bank. The merchant bank electronically sends an authorization request to a clearinghouse (for example, “VisaNet” in the case of Visa). The clear-inghouse passes on the request to the card issuer. The card issuer approves or de-clines the transaction. The clearinghouse
More and more of our members accept Visa®,
MasterCard®, or other credit cards as a service to
their customers. Many, if not most, operators who
accept credit cards have not thoroughly reviewed
the credit card merchant agreement that governs
transactions. Some of the provisions of these
agreements may surprise you.
forwards the card issuer’s authorization response to the merchant bank, the mer-chant bank forwards the response to the merchant, and the merchant receives the authorization response and completes the transaction accordingly. A lot of steps for almost instantaneous feedback!
When it comes to clearing and set-tling of items paid for by credit card, the merchant deposits the transaction receipt with the merchant bank. The merchant bank credits the merchant’s account and electronically submits the transaction to the credit card company for settlement, the clearinghouse facilitates, settles and pays the merchant bank and debits the card issuer’s account. Then the card issuer posts the transaction to the cardholder account,
sends the monthly statement to the cardholder, and the card-holder receives the statement.
No Minimum Charge, No Surcharge; Cash Discount OK
Merchants may not impose a minimum or maximum charge for a credit card purchase. It is a violation of most
merchant agreements, for example, to say “minimum purchase for credit card is $5.00.” Additionally, the merchant may not make any additional charge or extract any additional agreement, condition or security from a cardholder in connection with any credit card transaction. In other words, you cannot pass the credit card fee through to the customer, charge the customer a surcharge for using a credit card, or otherwise make any special agreement or impose any special charge on the customer in connection with a credit card transaction. Texas law (Finance Code §339.001) also prohibits these surcharges. Under Texas law, regardless
Credit Card Merchant Agreements & Texas
Credit Cards
of what your merchant agreement says,merchants can’t charge a surcharge to someone using a credit card instead of cash or other means of payment. However, federal law allows mer-chants to offer a discount for cash transactions, provided that the offer is clearly disclosed to customers and the cash price is
present-ed as a discount from the standard price charged for all other forms of pay-ment (15 U.S.C. §1666f).
Debit or Stored Value Cards, No Surcharge Allowed
Texas law, effective Sep-tember 1, 2013, also pro-hibits merchants from charging a surcharge on a customer using a deb-it or stored value card.
Returns
The bankcard merchant agreement requires you to “establish, maintain and disclose” to your customers
using credit cards a “fair and consistent policy” for exchanges and returns. There is no return policy dictated by the credit card companies. You must establish your own policy and communicate it to your customers using credit cards. According to the merchant agree-ment, you must also give any proper credit or refund via a credit card credit. For example, someone cannot pay with a credit card and receive a refund in cash. By issuing only card credit for refunds, you protect your customers from indi-viduals who might fraudulently make a purchase on their credit card account and then return the merchandise (cancel a one year prepaid lease, for example) for cash.
Storing Data
You are prohibited from storing the mag-netic stripe data after receiving authoriza-tion. After a transaction is authorized, the full contents of track data stored on the magnetic stripe must not be retained on any systems. You may store only the name, card number, and expiration date. All merchants are prohibited from storing CVV2 data (the three or four digit security code). When asking a cardholder for this data, merchants must not document CVV2 information on any kind of paper or store it on any database.
Recurring Transactions
A recurring transaction is one in which a cardholder authorizes the merchant to charge his account number for the recurring or periodic delivery of goods or services, such as monthly rent. The sales receipt for an initial recurring transaction must include the follow-ing information: the phrase
“recur-ring transaction,” the frequency of the debits, and the period of time the cardholder has agreed to the debits.
Prepaid Rent
The merchant agreement does not pro-hibit (and the credit card companies historically allow), monthly rent to be paid by credit card. But they have re-portedly frowned on, for example, 12 months of prepaid rent being charged all at one time. Presumably, this is due to the provision in the merchant agreement providing that credit cards may only be used to pay for merchandise sold or services rendered. But we pre-pay items all the time via credit card—what is the difference between paying for a one-year magazine subscription via credit card and prepaying for 12 months of rent via credit card? There is not a clear answer. However, one solution is to “paper” the transaction in an alternate way. Instead of charging for 12 months prepaid rent, enter into a lease with a one-year term, and charge a one-time yearly rate. Any partial rent refunds involving a one-year lease prepayment will, as noted above, need to be credited to the credit card. It would seem best to label the credit as “settlement” or something to
that effect to avoid labeling it “refund of prepaid rent.” The TSSA lease provides that no prepaid rent will be refunded unless the minimum term length in TSSA lease paragraph 3 is met. So for a one-year lease, you would fill “one year” in the minimum lease term blank in paragraph 3. So, under the lease you would not owe any rent refund if, for example, someone de-faulted and terminated the lease six months into a one-year lease. However, under state statute commercial landlords have a duty to mitigate damages. This entails using rea-sonable methods to attempt to re-let the space (whatever meth-ods you use to attempt to rent any vacant unit). Any rent actu-ally received from a re-placement tenant must be credited against the amount that the “breaching” tenant owes.
Pros and Cons
Accepting credit cards has benefits and drawbacks for any business. One obvi-ous benefit is customer convenience. Another is that most of the time, a credit card payment ensures an on-time pay-ment and normally results in far fewer delinquencies than checks. However, on the “con” side, in addition to the credit card fees that you must pay, checks have the advantage of potentially helping to identify “red flags,” such as an out-of-state address, no address (beware of tem-porary checks), or someone paying with a check that does not have his name on it. If your business accepts credit cards, you would be well-served to thoroughly review the credit card merchant agree-ment to ensure that you are operating in accordance with its terms. Some helpful summary information regard-ing a typical merchant agreement can be found at this link: http://usa.visa. com/download/merchants/card-accep-tance-guidelines-for-visa-merchants.pdf Credit Cards Continued...
©TSSA
Texas Legislature
T
he regular session of the 2013 Texas Legislative officially ended June 2013. As always, TSSA monitored and advocated for (and sometimes against) legislation in the interest of serving members. Connie Heyer, TSSA legal counsel and lob-byist, was once again spearheading TSSA’s efforts. Several bills were filed which would have had a significant detrimental effect on our membership, and several as-filed bills would have benefited TSSA members. We are happy to report that through TSSA’s efforts, all potentially detrimental bills were either not passed or were amended into an agreeable form, and several beneficial bills were passed. Most importantly, no changes were made to Chapter 59.This session, more than 5,000 bills were filed, and TSSA legal counsel actively monitored and/or advocated for (or against) approxi-mately 150 bills on behalf of TSSA. This report will describe the more significant bills of interest to TSSA members that passed into law. A “ ” next to a bill indicates that it is or would have been a positive bill for our industry, a “ ” indicates it is or would have been unfavorable, and a “ ” indicates that a bill’s ef-fect is or would have been neutral for our industry. HB denotes a House Bill, and SB denotes a Senate Bill.
Sale of motor vehicles (HB 2690, Elkins)
This bill as filed, would have prohibited anyone from selling a motor vehicle except the vehicle's owner or a licensed dealer. This would have made all Chapter 59 lien sales of vehicles illegal. TSSA expressed strong objection to the bill. Bill authors provided assurances that the intent of the bill was not to affect lien sales, and amended the bill so that, as-passed, it has no impact on TSSA members.
Tax notices (HB 242, (Otto)
This bill requires certain notices from the taxing authority, which had not been previously required to be sent certified mail, to be sent certified mail. The bill primarily addresses notice of tax roll-backs due to change in use of a property.
Appraisal Appeals (HB 31, Otto)
This bill makes permanent the initial pilot program established to give own-ers with properties valued at more than $1 million the option to appeal an appraisal review board determina-tion to binding arbitradetermina-tion, rather than a standard (more lawsuit-like) appeal.
Appraisal Hearings(HB 585, Villareal)
This bill requires the comptroller to adopt uniform standards for all appraisal review board hearings. This should help provide consistency of hearings across the state. The bill also increases the burden of proof for appraisal boards in cases where a property’s value was ad-judicated the previous year. Generally, appraisal review boards must establish the property value by a “preponderance of the evidence” (i.e., it is more likely than not that the property is worth $X). But this bill has raised the required stan-dard to one of “clear and convincing evidence” (meaning that it is substan-tially more likely than not to be true).
Property Tax Penalty Waiver (HB 1913, Williams; Bohac)
This bill allows the taxing authority to waive penalties for a taxpayer’s late pay-ment of taxes if the reason for the late payment is the taxing authority’s error in leaving you off the tax rolls, or other simi-lar tax authority error. (how generous!)
Confidentiality of Appraisal Hearings (HB 2792, Elkins)
This new law allows a chief appraiser and property owner to agree to conduct a closed ARB hearing when a property owner's confidential information is discussed.
Copies of Residential Leases (SB 630)
This bill requires all residential land-lords (including if you have an apart-ment for your on-site managers) to provide to their tenants a copy of the lease within three days after the lease is signed. You must provide the lease in hard copy format, or if you have cor-responded via email with the tenant in the past, you may provide it via email.
Debit Card Surcharges (HB 3068, Menendez)
This bill prohibits a merchant (including self-storage landlords) from imposing a penalty or other fee on customers who use a debit or other stored-value card.
Landlord Disconnection of Residential Electric Service
(HB 1086, Rodriguez)
This bill allows residential landlords who submeter or allocate electricity, and require tenants to pay their portion, to disconnect electricity under some circumstances.
Small Claims Courts Merging with JP Courts
This law delays the planned merger of small claims and JP courts until August, 2013. New eviction rules were written effective August 2013 that will somewhat change the eviction process. For ex-ample, you need not be represented by an attorney in an eviction suit—any “agent” (such as a property manager) can repre-sent you in court. All of these eviction law changes will be described in detail in the 2014-2015 TSSA Goldbook©.
Many thanks to TSSA Board mem-bers and staff who participated in T S S A’s e ff o r t s t ow a r d a n o t h -er successful legislative session!
Self-Storage Solutions
TSSA Legal Counsel Answers Your Questions
All articles by TSSA Legal Counsel Connie Heyer Niemann & Heyer, LLP Questions? Contact TSSA: 595 Round Rock West Dr. #503 Round Rock, TX 78681• 888-259-4902 • Fax: (512) 374-9253
e-mail: [email protected] • www.txssa.org
Q: I have two questions regarding rental rate increases. 1) If I send a 30-day no-tice, does it have to be a TSSA notice or a generic letter that is generated by our accounting software, or can it be an individual letter directly from the facility? 2) If my rate increase is effec-tive on 10/1 and I have sent my 30-day notice, when my customer comes in, in September, to make his October pay-ment, can I charge the new rate or must I wait until 10/1 to charge the increase?
A: It is never required that anyone use the TSSA forms (but naturally TSSA recommends that you do, as our forms are not generic, they are geared spe-cifically to Texas law and the TSSA lease). If you use generic or accounting software-generated forms, you do need to make sure they comply with all notice requirements outlined by the TSSA lease. The notice requirements for increasing the rent are spelled out in paragraph 30 of the TSSA lease. The requirements have changed slightly over time through different versions of the lease (for ex-ample, newer versions of the lease allow for email notice), so check your lease version and make sure your notice lan-guage complies with all requirements. If your rate increases are effective on October 1st and you’ve sent the proper 30-day notice of the rent increase, if your tenant comes in wanting to pay October rent early, certainly charge the new rate. The tenant always has the op-tion to give you 10 days notice of move out. If he doesn’t do that, then anything less than full, timely payment of Octo-ber rent will result in an account delin-quency, late fees, and other remedies.
Q: I received notification of a chapter 7 bankruptcy. However, the tenant is up-to-date on both of his units and continues to pay his rent on time. What action should I take if tenant contin-ues to make payment, on his units?
A: Count your blessings, is the short answer! No action is needed. Legally, the tenant is required to keep all rent coming due after the date of bankruptcy current. Not all tenants comply with this law, so just be glad yours is complying!
Q: How long should we keep leas-es of tenants who have moved out? Can we scan leases into a PDF, then destroy the original lease?
A: A scanned copy is perfectly sufficient. Ideally, keep records for five years if they involve vehicle storage (TDMV asks that you do this). Otherwise, four years is the magic number, because the statute of limitations for breach of contract claims is four years from the date the contract ended. Realistically, it may not be feasible to store all past leases and correspondence (change of address notices, etc.). If you have to pick and choose, I always advise, “keep the weird ones.” If there was a foreclosure, eviction, a particularly difficult tenant – those are first priority on the “keep” list.
Q: One of our tenants turned in a move-out notice. However, the date he indicated has passed, and the lock remains on. So far, I have been unable to contact him. I’d prefer not to foreclose. What should I do?
A: You could overlock the unit. He has not moved out by the date he gave you for his lease termination, so he is in violation and is holding over under the lease. Under TSSA lease paragraph 9, the tenant may not hold over beyond the date on his notice. Thus the tenant is in violation, and you can overlock him. At minimum, if the tenant comes in to remove his things, he’ll have to come to you and pay the overdue rent.
Q: We pro-rate the first partial month’s rent at my facility, but I want to require customers who pay in cash to pay the prorated first month’s rent, plus the next
full month’s rent, in advance. Is this le-gal or do I have to do it with everyone?
A: You may treat customers paying in cash differently; that is a business deci-sion for you. The only hard and fast rule in this area is that for customers who pay with credit or debit cards, Texas law says that you cannot pass the credit/ debit card fee through to the customer or charge the customer a surcharge for using the credit or debit card. However, federal law allows merchants to offer a discount for cash transactions, provided that the offer is clearly disclosed to cus-tomers and the cash price is presented as a discount from the standard price charged for all other forms of payment.
Q: What does TSSA recommend when a tenant loses his items due to public sale, but wants to communicate with the buyer in hopes of buying the items back and/or at least retrieving family photos, diplomas, yearbooks, etc.? Can tenant/buyer infor-mation be released to either/both parties?
A: This is a business decision for ev-ery member. Though there is nothing unlawful about it, I would not recom-mend putting a buyer in direct contact with the tenant, especially without the buyer’s consent. I recommend that you tell the tenant (if you are amenable) that you will pass his request along to the buyer, and give the buyer the ten-ant’s information, and leave it at that.
Q: A tenant rented on Saturday and the call came in on Monday asking that her payment be refunded. She then started to speak on about the state law and mentioned she had a legal right to cancel / back out of her lease within three days of signing it. Is this right?
A: No, this is not correct, and this is often a source of confusion for tenants. Under Texas law, there is a three-day
©TSSA
Self-Storage Solutions
right to cancel a contract, but only if the contract is signed in a place other than your facility. The law applies only if the merchant (you) personally solicited the tenant at a place other than the merchant’s place of business, and only if the tenant signed the contract at a place other than the merchant’s place of business. So, if you bought a vacuum cleaner from a door-to-door salesperson who rang your doorbell, you have a right to cancel within three days. Your self-storage tenant who signed the lease at your facility does not. Also, the three-day right of rescission does not apply to sales made entirely by mail or telephone.
Q: I have a tenant who just passed away a week ago. She has two units under her name, but her husband and ex-husband have been making the pay-ments, and now each wants to have ac-cess and put the lease in his name. The ex-husband is the emergency contact on the lease. How do I handle this?
A: Under the TSSA lease, you have the legal right to allow the listed emergency contact access. You also have the legal right to allow access to a spouse who presents you with an affidavit that the tenant is deceased. Neither of these ac-tions is a legal obligation on your part. If you want to avoid putting yourself in the middle of a feud between the husband and the ex, you may simply tell them that you are going to sit tight and that you will be glad to (1) comply with any judge’s order either directing your facility to hand over the contents to one of them, (2) assist either of them with access pursuant to your rights under the lease if either can give you a court order awarding the contents of the space to him, or (3) assist either of them with access pursuant to your rights under the lease if either can give you a letter from the estate’s executor directing you to hand over the contents to one of them (and you will want a comfort level that the letter writer really is the estate’s executor, nor-mally the probate court can confirm this).
Smoke Alarms in On-Site Apartments:
Reminder of New Requirements
Residential landlord/tenant statutes typically apply to a self-storage facility’s on-site apartment. Smoke detector statutes are no exception. As noted in the 2012-2013 TSSA Goldbook©, the 2011 Texas legislature revised the smoke detector statutes to re-quire that in dwelling units, at least one smoke alarm must be installed per bedroom and per level (when dealing with a multi-level dwelling). Consequently, storage facilities with on-site apartments not already in compliance with the 2011 statutory revisions need to add additional smoke alarms to meet the new standards, which took effect September 1, 2011 for properties built after September 1, 2011. For properties built before September 1, 2011, the compliance date was January 1, 2013. As of these deadlines, smoke alarms may no longer be installed “in the vicinity of” each bedroom, as the old statute allowed. Now, smoke alarms must be installed inside each bedroom.
The statute is reprinted below. A copy of §92.252, referenced in §92.255(b) below, can also be found at www.capitol.state.tx.us (click on “Statutes” and select “Property Code”) or can be found as part of the “Business Property and Tax Laws” section of the 2012-2013 TSSA Goldbook (beginning with the 2014-2015 TSSA Goldbook©, this section will no longer be printed in the book, but will be included on the Appendix CD sent with the book).
Texas Property Code Section (92.255)
INSTALLATION AND LOCATION [of smoke detectors]
(a) A landlord shall install at least one smoke alarm in each separate bedroom in a dwelling unit. In addition:
(1) if the dwelling unit is designed to use a single room for dining, living, and sleeping, the smoke alarm must be located inside the room;
(2) if multiple bedrooms are served by the same corridor, at least one smoke alarm must be installed in the corridor in the immediate vicin-ity of the bedrooms; and
(3) if the dwelling unit has multiple levels, at least one smoke alarm must be located on each level.
(b) If a dwelling unit was occupied as a residence before September 1, 2011, or a certificate of occupancy was issued for the dwelling unit before that date, a smoke alarm installed in accordance with Subsection (a) may be powered by battery and is not required to be interconnected with other smoke alarms, except that a smoke alarm that is installed to replace a smoke alarm that was in place on the date the dwelling unit was first occupied as a residence must comply with residential building code standards that applied to the dwelling unit on that date or Section 92.252(b).
Smoke Alarm Reminder
Connie Heyer is a partner in the law firm of Niemann & Heyer, LLP in Austin and serves as legal counsel for the Texas Self Storage Association. Heyer is co-author of the TSSA Goldbook©, a comprehensive guide to laws and regulations affecting self-storage professionals in Texas. She is also the author of the current TSSA Rental Agreement and official forms.
O
ccasionally, self-storage owners will either lease separate space that is solely “com-mercial” office or retail space, or lease what is typically referred to as “office- warehouse” space. Many people don’t realize that this type of leasing is an entirely different “animal” than self storage. It is important not to confuse the two and to use the appropriate legal documents for the commercial or “office-warehouse” envi-ronment. The standard TSSA rental agreement is solely appropriate for a “pure” self-storage setting, and is not an appropriate document for use in a “standard” (non-self storage) com-mercial setting or “office-warehouse” setting. This article will summarize the respective laws applicable to self storage and commercial land-lord/tenant (non-self storage) leasing situations. Self-Storage LeasingThe term “self-service storage facility” is clearly and narrowly defined in Chapter 59 of the Prop-erty Code. It is defined as “real propProp-erty that is rented to be used exclusively for storage of property and is cared for and controlled by the tenant.” So, in order to fall under Chapter 59 and be able to use the foreclosure and other lien pro-cedures of Chapter 59, you must be renting real property to be used exclusively for storage (not to be used for office or retail) and the property must be cared for and controlled by the tenant. This is normally interpreted to mean only the tenant and those to whom he gives the key have access. (The facility does not retain a key, does not retain a master key, etc.) Chapter 59 is only applicable to “self-service storage facilities.” So, unless your rental situation falls under the defini-tion of self-service storage facility, you may not utilize the provisions of Chapter 59. If you use the Chapter 59 foreclosure procedure, for example, on a non-self-storage commercial lease, you will subject yourself to significant liability because Chapter 59 is not applicable to any leasing situa-tion other than self-storage. The TSSA lease is not appropriate for use as an office lease, even if there is a storage space attached to the office space. The TSSA lease is only appropriate when the sole use of the leased premises is for self-service storage.
Other Commercial Leasing
The laws that apply to non-self-storage commercial leasing can be found primarily in Chapters 54 and 73 of the Texas Property Code. You can find these statutes in the “Business, Property and Tax Laws” Goldbook© section, which will be moved to the Appendix CD in the Goldbook© beginning with the 2014-2015 Goldbook© version. As compared to self storage, there are different procedures with regard to foreclosure, lockout rights and numerous other different procedures and restrictions applicable under these statutes. Chapter 59 (Section 59.003) provides that Chapter 54 of the Texas Property Code, subchapter B (the commercial landlord/tenant lien statute) is not applicable to a self-service storage facility, and this prevents “overlapping” and conflicting laws from applying to self-service storage facilities. Chapter 54 Governs Non-self-storage Commercial Leases
Among the differences between Chapter 59 and Chapter 54 are the following: Chapter 54 gives the landlord a lien, but only for rent that is due. In con-trast, the Chapter 59 statute gives landlords a lien for all amounts that come due under the lease, not just rent. Chapter 54 provides that a lien is unen-forceable for rent on a building if the rent is more than 6 months past due, unless the landlord files a lien with the county clerk. The self-storage statute (Chapter 59) contains no such filing requirement. In Chapter 54, there are certain items that are exempt from foreclosure, in contrast to Chapter 59, where nothing is exempt (a self-storage owner has a lien on “all” property in the unit, no exceptions).
With regard to “lockouts” (what is typically called an “overlock” in a self-storage setting), there are also different statutes applicable to the self-storage setting versus the general com-mercial landlord/tenant setting. Chapter 93 of the Property Code specifies the lockout procedures for non-self-storage commercial tenancies. Under Chapter 93, a commercial landlord may not lock a tenant out unless a tenant is delinquent in paying at least part of the rent. The lockout is only available for nonpayment of rent, not for nonpayment of late fees or other non-rent items.
In a commercial (non-self-storage) lockout setting, if part of the rent is due and the landlord exercises his lockout rights, the landlord or his agent must at the time of lockout place a written notice on the tenant’s front door stating the name and ad-dress or telephone number of the individual or company from which a new key may be obtained. The landlord is required to provide a key to the tenant only if the tenant pays the delinquent rent. TSSA publishes a form that TSSA members can use in the commercial (non-self storage) setting who is legally entitled to lock his tenant out for nonpayment of rent. This is form MISC-5, “Notice to Commercial Tenant Regarding Lockout for Nonpayment of Rent.” TSSA also publishes a form, MISC-4, entitled “48 Hours Advance Notice to Commercial Tenant Regarding Intent to Exercise Statutory Lockout Rights.” This 48-hour notice is not statutorily required for a commercial setting, but many commercial landlords choose to give 48 hours advanced notice. Some do not because the tenant then has 48 hours to move all of his items out of the rented property and you would then have little if any collateral to seize when exercising your lien rights. It is simply a matter of preference. TSSA Lease Not Appropriate for Standard Commercial Leasing Purposes For a variety of reasons, the TSSA lease is inappropriate for commercial landlord/tenant situations that are not strictly self-storage leas-ing. The lien statutes applicable to self-storage situations versus other commercial leasing situ-ations are very different. The right to overlock and utilize the Chapter 59 procedure in following through with liens and foreclosures is not ap-plicable in a non-self-storage setting. Owners who utilize the TSSA lease for non-self-storage situations may inadvertently, when following the rights and remedies outlined in Chapter 59 and the TSSA lease (such as overlock, foreclosure, etc.), expose themselves to liability. Owners should contact their own attorneys to help draft a lease appropriate to their specific commercial tenancy situation. It is virtually impossible to draft a “one size fits all” commercial lease, as every commercial leasing situation is different.
Commercial Leases/“Office-Warehouse” Leases:
Not the Same as Self Storage!
©TSSA
Eviction? Foreclosure? Abandonment?
Which to Use When
M
ost of the time, the best practical remedy for a facility in the event a tenant violates the lease is to exercise the Chapter 59 lien foreclosure process. However, there are several situ-ations where a foreclosure sale is not pos-sible or is impractical. This article will briefly summarize those situations, and answer some frequently asked questions.General Remedies
If a tenant is delinquent in paying rent, the primary remedies available to you are: (1) the Chapter 59 foreclosure pro-cess, (2) the eviction propro-cess, or (3) striking a deal where the tenant signs a document officially abandoning the unit.
Priority of Remedies
1) Abandonment. This is very
cost-effective. If you can get a tenant to sign a written statement that he abandons the contents of the unit, then that is probably the best scenario: it costs you nothing, allows you to clean out the unit and sell or throw away the contents, and frees up the unit to a paying customer.
2) Foreclosure. Foreclosure has some
costly (e.g., newspaper notice) hoops to jump through, but short of a written statement of abandonment, is typi-cally the best option. It accomplishes legally vacating the unit and returning possession to you, and allows you to sell the tenant’s goods to try and re-cover part of (or if you are really lucky, in rare cases, all of) the debt owed.
3) Eviction. Eviction is another legal
pro-cess of retaking possession of a unit. You cannot sell the unit contents at the end of the “eviction” road, but if abandonment or foreclosure is not an option, eviction is the remedy you’ll likely need to use.
Abandonment: When and How?
There are two ways to achieve a legal abandonment of a unit: (1) the situation meets the TSSA lease definition of aban-donment, and (2) the tenant signs a written agreement abandoning the unit contents.
TSSA Lease Abandonment
Paragraph 26 of the TSSA Rental Agreement provides that a tenant who has abandoned his storage unit relinquishes all rights to contents in the space, and that the landlord may remove any lock, enter the unit, and remove and/or dispose of all contents within.
Tenant’s Written Confirmation of Abandonment
The tenant can, regardless of what is in the unit, agree to abandon the contents. You may for example, entice him to do this by agreeing to forgive some rent if he does this, or any other deal you care to strike. To evidence the tenant’s agreement to abandon, you can use the TSSA “Authorization or Release” of-ficial form. You will need to check the fifth check box entitled “Tenant’s abandonment of contents,” and then the tenant will need to sign and return the document to you. Once this happens, per the terms of this form, you can empty out the unit and sell, give away, or throw away anything you like. (You need not go through the eviction or foreclosure process.)
Foreclosure: When and How?
Foreclosure is likely your best bet when there are items of value in the unit, and the tenant or won’t agree to sign an abandon-ment form. There are detailed step-by-step foreclosure articles in the TSSA Goldbook©. Also, see the discussion of the eviction process below for more information when foreclosure is not an available remedy.
Eviction: When and How?
Foreclosure is not a legal option in the following situations:
1. The rental agreement is oral. Chapter 59 requires a written lease in order to be able to exercise the lien foreclosure process.
2. The rental agreement is written but does not contain the necessary contractual lien language. Chapter 59 requires that a rental agreement contain language “un-derlined or in conspicuous bold print” describing the landlord’s lien. The TSSA Rental Agreements have the required language, but other agreements may not. 3. The rental agreement is written, but is not
signed by the tenant. If your rental
agree-ment is not signed by the tenant, the court would, in all likelihood, not consider you to have a binding written agreement. 4. The tenant is not delinquent. Perhaps
the tenant is storing something that is not allowed to be stored per the terms of the lease, or holding over beyond a move out date you have provided the tenant. In those cases, if no money is due, foreclosure is not an option. The TSSA Goldbook© contains detailed ar-ticles on the eviction process, but generally, you must provide the tenant with a 3-days notice to vacate due to breach of the lease. The tenant must have three days notice from the day he receives the notice, so provide some “cushion” with the move out date to account for mailing time(if applicable).
If you are evicting because the tenant has refused to move out when you asked him to, you first must have given a 15-day notice of lease termination. Under para-graph 9 of the TSSA lease, you have the right to terminate a tenant’s lease any time upon 15 days notice. If they fail to move out on time, they are in breach of the lease.
Both of these notices are available on the
Goldbook©Appendix CD and in Blue Moon. The 3-day notice to vacate may be sent regu-lar, certified or registered mail. However it is recommended that this notice be sent regular and certified mail so that you can prove that the tenant received the notice on a certain date. A 15-day notice of lease termination may be mailed (any method of mailing) or hand delivered (or in more recent lease ver-sions, emailed—check your lease language). But it is also recommended that you send this notice via certified mail or another mailing method that provides you evidence of mail-ing, so you can prove that you sent the notice. After the 3-day notice period has run, file an eviction suit in the Justice Court hav-ing jurisdiction over your facility. (This will depend on the location of your facility. Call any Justice Court in the area and give them the address, and they can tell you the appro-priate court to file in). You will need to pay a filing fee, pay a fee to get the tenant served with the lawsuit, and then after the tenant’s answer date has passed, you should request a hearing be set. Take your records to trial so you can prove to the judge that a violation exists. If and when you win the case, ask the clerk to issue a “writ of possession,” which means that the constable comes out and al-lows you to move everything out of the ten-ant’s unit (generally placing contents on the right of way in front of the facility). There is normally an additional fee for a writ of posses-sion, but it is a necessary part of the process. The Rental Agreement provides that
the tenant has “abandoned” the storage
space if the tenant has 1) not paid rent or other sums due, 2) the tenant’s lock has been removed by someone other than the landlord or has been removed by the landlord when exercising a statutory seizure, and 3) the tenant’s space contains nothing of value to the ordinary person. If you are confident that a tenant’s space contains nothing of value to the ordinary person, then you may declare the unit abandoned and clean the unit out and re-lease it.
S
ince 1984 there has been a state sales tax on motor vehicle storage. This article will provide answers to frequently asked questions regarding parking storage.Question: Why do I have to charge my tenants sales tax when a storage space is used for parking?
Answer: Because it’s the law! Sales tax is not due on the rental of most self-storage units. However, sales tax must be collected if the rented space is used to park a vehicle.
Question: What is the general rule?
Answer: Your facility has the duty to collect sales tax on all rents and charges received for vehicle or trailer parking or storage. Your facility needs to collect the monies from the customer and remit them to the state.
Question: What kinds of things do I have to collect this parking sales tax on?
Answer: In other words, what is a “motor vehicle” subject to tax? Namely, it is cars, trucks, RVs, motor homes, truck trailers, boat trailers (without a boat on them), travel trailers (but not mobile homes), pop-up trailers, golf cart trailers, tow dollys, tractor trailers and motorcycle trailers. Just about anything that moves on a highway or is attached to something that moves on a highway qualifies.
Question: What if I collect rent for parking but don’t collect the tax?
Answer: Your facility is liable for payment of the park-ing taxes if the customer pays the rent but not the tax.
Question: What if the customer doesn’t pay anything, including rent?
Answer: If the customer pays nothing (defaults on rent payments), no tax is due.
Question: There are always exceptions, what are they?
Answer: There is no duty to collect and remit tax on an occupied boat trailer (trailer with a boat on it), or golf cart trailer with a golf cart on it, or unlicensed off-road motorcycle trailers with an off-road motorcycle on it.
Question: Does it matter whether the vehicle is stored inside or outside?
Answer: No, sales tax is due whether storage is indoor or outdoor.
Question: What if a vehicle is stored in an enclosed unit, and there is other stuff stored in there, too?
Answer: Sales tax must be paid on the dollar amount of all rents actually received by the parking/storage facility operator for the service of parking or storage. If the car takes up half of the unit, and other stuff is stored in the other half, you could in the lease say $X rent attributable to parking storage, and $X attribut-able to non-parking storage. But, that may be more
trouble than it’s worth, and may cause confusion with the comptroller. It is a business decision for you, and you should consult your own lawyer or accountant, but it might make sense just to charge tax on the entire rent and not open the door to questions in that regard.
Question: What if I don’t know that a vehicle is being stored inside a unit?
Answer: Once you find out, start collecting and remit-ting sales tax. The TSSA lease expressly prohibits storage of motor vehicles without your express consent, so legally there should not be vehicle storage that you don’t know about. If you do allow vehicle or boat stor-age, it is strongly recommended that you use the TSSA Vehicle Trailer and Boat Self-Storage Rental Agreement.
Question: What about a large mobile barbeque pit?
Answer: Mobile barbeque pits are either considered to be motor vehicles (and subject to storage tax) or not based on the following test: Barbeque pits that have been mounted on flatbed trailers are motor vehicles and the charge for storage is taxable. Barbeque pits that have had wheels and axles mounted on them are movable specialized equipment and charges for storage are not taxable.
Question: What if my customer is tax exempt?
Answer: Exemptions from the sales tax include: (1) parking or storage charges paid by governmental entities, and (2) parking or storage charges paid by religious, educational, or charitable entities that sign an exemption certificate and give it to the parking facility operator. Such exemption certificates must be kept on file for Comptroller audit purposes in case the sales tax reports are ever questioned.
Question:Can I pay the tenant’s tax? Do I have to note in my ads or my lease that tax is due?
Answer: Your lease can state (you could insert into TSSA lease paragraph 6, special provisions, for example) that the “rental price includes sales tax.” But your lease must contain this language if this is your practice. And if
your price includes sales tax, obviously you must remit the sales tax to the comptroller. For example, say your rent is $50/month and your lease says that this includes sales tax. You must back out the 8.25% tax. So, your rent income is really $46.19, and you must remit $3.81 to the comptroller.
If you’re passing the sales tax through to your tenant separately and in addition to the rent, you don’t have to include special language in the lease.
If you provide an invoice or receipt to tenants, you must separately state the sales tax amount on the invoice or receipt, unless it contains a statement that the price includes sales tax.
Parking signs, parking advertisements, and other promotional information for parking cannot say that the parking facility operator pays the sales tax. However, they can (a) be silent on the tax; (b) say the price includes sales tax; or (c) say the price is “plus tax.”
Question: Must I obatain a sales tax permit?
Answer: If you allow vehicle storage, you must obtain a comptroller’s sales tax permit and begin to make monthly, quarterly, or yearly sales tax payments to the Comptroller. As a general rule -- if you have less than $1,500 in sales tax per quarter, you may file quarterly. If you have less than $1,000 sales tax per year, you may file yearly “upon authorization from the comptroller.” Authorization will depend on historical sales tax filings. You may call the comptroller at (800) 252-5555 to discuss this.
Question: If I have a sales tax permit, what if I don’t have any taxes to report for the reporting period?
Answer: Even if you don’t have any taxes to report for your reporting period, you must submit a return for that period to the comptroller.
Question: What other parts of my business are taxable?
Answer: Sales of boxes, tape, snack foods and other products. Also, you must collect and remit sales tax on all proceeds from your Chapter 59 auctions (with the exception of sales of vehicles and boats, outboard motors, and buyers with exemption certificates or resale certificates).
Question:What about free rent or other “give aways”?
Answer: If you occasionally give away free rent, a disk lock, boxes, or other taxable items as part of a promotion, sales tax is still due. You must pay sales tax at one “end” of the transaction, regardless of whether you give the items away. In this instance you would pay sales tax on the items given away such as boxes and tape, based on their purchase price from the wholesaler. For free rent, you would remit sales tax for the full rent. The “give away” items should be categorized as “taxable purchases” on your sales tax return, reportable on line 3 of your sales tax return.
