Jul 152008

I have a new word to add to my list, that many of you have heard, of words to abolish from your self-storage vocabulary (see ISS 1/2/2007). That word is “free”.

I see the word free all of the time in relation to self-storage. You may have read my critique before the idea of the term “free truck with move-in”. I have warned you that, in the past, Operators had to buy toy trucks to hand out with the move-in to fulfill the obligation of getting a “free truck with move-in”. Further, previously I have cautioned you about making sure that the truck is really free, that is that there are no terms and conditions that cost money or change the deal. Some of you have told me that you do not take me as seriously as you should on this issue and call it a free use of truck, even if you charge for issues related to its usage.

Recently, however, multiple state Attorneys General have joined together to file class action lawsuits against all the major cell phone providers. While you are saying, it is about time someone did something about those awful cell phone providers, this is not for the reason you hoped. The reason they are suing the cell phone providers is over the use of the word free. All cell phone providers have some variation on the following concept; if you sign a 2 year service agreement you get the cell phone for free. That seems innocent enough, however, if you terminate your cell phone contract early, you have to pay an early termination fee. The explanation that the cell phone providers have given for years about the early termination fee is that the termination fee is to help them recoup the cost of the “free” phone they gave you since the cost of the phone is recovered through the monthly service charges. When you do not fulfill the entire service agreement, the cell companies have to recover that cost of the “free” phone. Guess what? That is not free, that is building the phone into the price of a cell phone/contract/calling plan.

Turning again to the dictionary, as I am prone to do, there are multiple definitions of “free”, let me give you two of them: (1) “Provided without, or not subject to, a charge or payment (example: free parking or a free sample); or (2) “Given without consideration of a return or reward: a free offer of legal advice” (perish the thought) (Random House Unabridged Dictionary, 2006). I have spared you the other 46 definitions, but I think you get the idea. When the cell phone companies say a phone is “free” but then say the cost of the cell phone is built into your monthly service charge such that it has to be recovered by a termination fee if you do not fulfill your contract, that phone is not by definition, free.

Let us apply that to self-storage. I have many operators who tell me that they work out a deal that if you will sign a 12 month lease, the “Xth” month is free, and in fact if the last month is the free one, there may actually be a good argument that the 12th month is free. In this example the 12th month may have been given “without consideration.” I would contend that the 12th month might actually be free. I am far more concerned if you give a middle month away or if you expect pre-payment for 11 months of the 12 month term, in order to get the 12th month free, this leads to argument that the pre-payment, i.e. the time value of the money, is the consideration for the 12th month, especially if, when the occupant breaks the lease during the term there is some sort of loss of the concession or a fee to the occupant for breaking the lease. If so, consideration is required for signing a 12 month lease to get the 12th month “free” and in fact the month is not free.

The problem may be more apparent in other “free” items. Free shelving with the signature on an agreement or an extended term is not really free, it is actually built into the price you would expect to charge someone who rents a unit with shelving. Better yet what about a free lock? Do you give locks away to anyone who walks into your office, or only those who sign a rental agreement? Then is the lock free?

The same is true with free truck use at move-in. Is it really free? It may not be because often there is “consideration” of the occupant having to sign a lease to use the truck. Further, many of you charge insurance premiums and/or other usage charges. Also, many of you put hour limitations, usage, or mileage limitations on the truck. If that is the case, I do not believe that the truck is always provided “without, or not subject to a charge or payment,” i.e. free. If I keep the truck for 3 hours and I was only supposed to keep it for 2, I owe a fee – the 3rd hour is not free. If I have to pay for insurance then I am not getting a truck without a charge or payment, I am making a payment for insurance.
You get the drift. If you are not really giving it away, if something is tied into or requires consideration of something else in order to obtain the “free” item, then that item is not free. I caution you about this because if the Attorneys General win their lawsuits against the cell phone companies, self-storage is a really interesting next place to look at for followup lawsuits. With the competition in the industry and with some facilities suffering because of a downward economy, there is a lot more “creative” marketing and concessions a bunch more going on. I strongly caution to consider what those concessions are and avoid the word “free”.

I would much rather you offer the 2nd month for $1.00, rather than the 2nd month for free. While the $1.00 is not going to make that much difference to your bottom line, you are avoiding the idea that you are “giving away” the 2nd month for no consideration, when in fact the consideration was that the occupant had to pay rent for the first month. The same with truck use – how about $1.00 use of truck for 2 hours if you sign a minimum 1 month rental agreement? I know it does not flow off the tongue quite like “free truck with move-in” but I hope you can understand that we have some really valid concerns about your continued use of the word “free” when it is tied to another fee or the purchase or use of another service.

As always, I am just warning you to be careful. While I am sure the Attorneys General would much rather go after a cell phone company than a self-storage company, that does not mean that private attorneys, who see the cell phone case, will not start thinking about using the same strategy with self-storage facilities. I do not want to be an alarmist, but the Attorneys General make a good point, when you stop and think about it. So, please do stop and think about it; please consider adding to your list of words to banish from your self-storage vocabulary the word “free” if it is in fact tied to the use or charge of something else at your self-storage facility.

Jeffrey J. Greenberger is a Partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati, Ohio and is licensed to practice in the states of Ohio and Kentucky. Mr. Greenberger’s practice focuses primarily on representing the owners and operators of commercial real estate, including self-storage owners and operators.
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.
Jeffrey’s website, www.selfstoragelegal.com, contains Jeffrey’s legal opinions and insights into the self-storage industry, as well as an article archive.

Jeffrey is the legal counsel for several State Self-Storage Associations, as well as a regular presenter at Inside Self-Storage Trade Shows. You can send your questions, comments, or suggestions for future topics to Jeffrey J. Greenberger at jjg@kgnlaw.com, or mail them to Jeffrey J. Greenberger, c/o Katz Greenberger & Norton LLP, 105 E. Fourth Street, Suite 400, Cincinnati, Ohio 45202, or you can reach Mr. Greenberger at (513) 721-5151.



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