Legislature(2001 - 2002)
04/08/2002 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 277-SELF-STORAGE FACILITY LIENS CHAIR MURKOWSKI announced that the next order of business would be HOUSE BILL NO. 277, "An Act relating to liens by owners of self-storage facilities; distinguishing self-storage facility liens from another type of storage lien; and excluding self- storage liens from the treatment of certain unclaimed property." Number 1958 REPRESENTATIVE JOHN DAVIES, Alaska State Legislature, testified as the sponsor of HB 277. Representative Davies informed the committee that the bill has received a fair amount of comment to which he has responded via the proposed committee substitute (CS). The CS addresses all the concerns raised to date. Number 1973 REPRESENTATIVE HALCRO moved to adopt Version 22-LS0175\L, Bannister, 4/5/02, as the working document. There being no objection, Version L was before the committee. REPRESENTATIVE DAVIES noted that an owner of a self-storage facility brought forth this issue. The problem arises when someone fails to make payment or leaves town and the owner of the facility ends up having a storage unit with full of stuff. Existing statute requires that the facility owner dispose of the material at a public auction, which the facility operators have found to be inconvenient. Once it's determined that the bill isn't going to be paid, it can take six to eight months to coordinate an auction. During that time, the facility owner has to keep the material safe and thus, it generally means that one of the storage units is in use and can't be rented. Therefore, this legislation proposes changing the requirement such that the facility owner can dispose of the material in the manner of their choice. The bill does include some protections in that the proceeds from the disposal of the material must be held for a year so that the individual who owned the material could apply for the proceeds of the sale of the material in the storage unit minus the cost of disposal. REPRESENTATIVE DAVIES explained that Version L clarifies that the statute of the residential Landlord and Tenant Act doesn't apply in these situations. The CS also clarifies that if the rental charges are unpaid for four days, then the facility owner may place an over lock on the unit and hold it until the rent is paid. If the rental charges are unpaid for 60 days, the facility owner may take possession of the personal property. There was objection to the language requiring the name of the facility owner to be included in the mailed notification, and therefore that was removed. If there is more than one delinquent unit at a time, a single publication can include several delinquent units. Section 34.35.649 includes the definitions of facility owner, rental agreement, and unit renter. Number 1762 REPRESENTATIVE HALCRO informed the committee that the two places he has contacted in Juneau require a security deposit, which means that the facility owner receives one month's [rent] for a security deposit. Instead of utilizing the security deposits, the legislation specifies that after four days the locks can be changed. In Section 34.35.600(c) the legislation further specifies that "a facility owner is not required to apply a security deposit received by the facility owner to the reduction of the rental charges when determining whether the rental charges have been paid when due." He questioned why the language wouldn't specify that the security deposit be applied until it has been liquidated at which time the locks on the unit could be changed. REPRESENTATIVE DAVIES related his belief that the current practice is to change the locks after there has been no payment for three to four days. Although he said he wouldn't have a problem with [Representative Halcro's suggestion], he suspected that the facility owners probably would. Number 1623 AMY KAUFMAN, Staff to Representative Davies, Alaska State Legislature, testified on behalf of Representative Davies. Ms. Kaufman related her understanding that typically the security deposit is used to cover how the unit is left [upon termination of the agreement]. She acknowledged that various storage facilities could have different agreements with regard to the security deposit. CHAIR MURKOWSKI directed attention to the definition of "amount owed" in Version L. She related her belief that the security deposit should be used to offset the amount owed once the lien on the personal property is eliminated, at the end of the day. REPRESENTATIVE DAVIES noted his agreement. However, with regard to changing the locks after four days, he said that would still be the preference. REPRESENTATIVE HALCRO expressed concern with the timelines, especially for those in the military. He said that there seems to be little protection for those who might be suddenly called away. Upon hearing from the audience that military personnel are covered under federal law, Representative Halcro questioned whether that [exemption for military personnel] should be specified in the legislation. REPRESENTATIVE DAVIES said that he wasn't sure that in fact [military personnel are exempt per the federal law]. He explained that the legislation attempts to clarify existing state statute and change the mechanism of disposal. Representative Davies remarked that even if someone is called away [for military purposes], that individual is still responsible for their affairs. Furthermore, a valid mailing address is required, which would be utilized with the certified mail notification. Therefore, maintaining normal business practices, such as a current address, would avoid problems. Number 1465 CHAIR MURKOWSKI pointed out that the definition of "amount owed" includes personnel and administrative costs, which is fairly broad term. She asked if there is a way in which to define what is included in personnel and administrative costs. MS. KAUFMAN said that hasn't been addressed. REPRESENTATIVE DAVIES commented that the normal remedy for those charges viewed to be unreasonable is to go to civil court. Representative Davies related his belief that when an individual enters into an agreement to rent a storage unit, the terms and conditions should be specified in the rental agreement. Perhaps, this aspect of state law could be required to be included in the rental agreement. CHAIR MURKOWSKI turned to Section 34.25.640 on page 4. She related her understanding that when a lien is satisfied, an acknowledgement of satisfaction has to be provided. REPRESENTATIVE DAVIES said that he wasn't sure when the aforementioned requirement arose, and therefore he offered to look into it. Number 1315 REPRESENTATIVE KOTT returned to the certified letter [requirement]. He posed a situation in which an individual is receiving medical treatment out-of-state for four months. Although the certified letter could have went to the individual's house, someone else could've signed for it and the individual never saw the letter. Representative Kott asked if there is another way to deliver notice such as restricted delivery, which means that the individual with the agreement would actually be the individual who signs the delivery receipt. REPRESENTATIVE DAVIES pointed out that requiring more than a certified letter would provide no recourse if an individual dodges the receipt of the letter or doesn't specify a valid address. In existing statute, if an individual doesn't pay the rent for their unit for three months, the material inside the unit is auctioned. Although the details are being changed, the principles and timelines aren't being changed too much. In response to Chair Murkowski, Representative Davies said that Section 34.35.175(b) specifies that the facility owner may sell the articles in the unit at a public auction if the charges aren't paid within three months. Representative Davies related his belief that there are some noticing [requirements] that are included within the three months. Number 1156 REPRESENTATIVE KOTT inquired as to the protections for the renter with regard to ensuring that the facility owner sells the items within the unit for a reasonable price. He posed a situation in which one of the articles left in a storage unit is a portrait worth $1,000 and it's given away. The renter would still be liable for the back payments and administrative costs, and the renter's goods have been sold. He surmised that the renter had no recourse. REPRESENTATIVE DAVIES replied yes. Under the present statute, the only recourse is the auctioning of the items in the storage unit. REPRESENTATIVE KOTT interjected that the auctioneer would attempt to obtain the best amount possible. REPRESENTATIVE DAVIES said that an auction can still be done; it's one of many options. MS. KAUFMAN pointed out that most [owners] are attempting to recover lost costs and thus chances are that the [owners] would want to recover those costs. Number 1047 REPRESENTATIVE KOTT informed the committee that he has a storage unit in Juneau that costs $45 a month. In that unit he has about $10,000 worth of equipment. If he falls into arrears for three months, the owner could attempt to recover the costs for the last three months by selling the equipment for $500. Representative Kott said that is a potential situation. REPRESENTATIVE DAVIES indicated agreement. He pointed out that an individual with a storage unit containing $10,000 worth of stuff should be responsible and have a forwarding address. Representative Davies said he wasn't sure for whom Representative Kott was concerned. REPRESENTATIVE KOTT remarked that there is nothing in the legislation that ensures fair market value for whatever is in the storage unit. CHAIRMAN MURKOWSKI directed attention to page 3, line 26, which reads as follows: "(b) If the property subject to the lien appears to be salable, the facility owner shall attempt to sell the property. If the facility owner cannot sell the property or if the property appears to have little value, the facility owner may sell, give away, or throw away the property." REPRESENTATIVE KOTT noted that his equipment is probably not salable in this city. Yet, it could be given away and he would still be responsible for the back rent, et cetera. REPRESENTATIVE DAVIES pointed out that if the equipment was given away, there is no need to pay. He specified that the equipment would only be given away because there was no response to a letter noting that the rent was due. REPRESENTATIVE ROKEBERG said that the question then becomes whether giving away the items stored in the unit would satisfy the lien if the owner hasn't recovered enough money. REPRESENTATIVE DAVIES replied yes. CHAIR MURKOWSKI surmised then that when a lien is satisfied the facility owner should be required to submit an acknowledgement of satisfaction. REPRESENTATIVE ROKEBERG pointed out that nothing in the legislation seeks to maximize the recovery. There could be a situation in which the value of the property significantly exceeds the rent. REPRESENTATIVE DAVIES mentioned the good faith clause. The problem is that there is a lot of different property housed in storage units, some of which is junk and some of which are hidden heirlooms. If there is [too much specificity], it's going to be difficult for facility owners to dispose of the property. Number 0756 GRANT CARLIN, Self-Storage Operator, testified via teleconference in support of HB 277. Mr. Carlin informed the committee that storage facility operators would rather receive rent, and therefore they do everything possible to contact delinquent tenants in an attempt to avoid disposal of the property. A home telephone number, a work telephone number, and emergency contacts are all required. He noted that he has even gone through units in an attempt to find an address of relatives. Often, tenants move without providing a forwarding address or phone contacts and the emergency contacts aren't reachable. Therefore, the facility owner is left with the burden of disposing of the property, which is frequently worthless. With regard to changing the locks, Mr. Carlin clarified that no locks are changed but rather a double lock is utilized. The security deposit collected in Fairbanks isn't equivalent to a month's rent. He informed the committee that in Fairbanks's the security deposits range from $15 to $30. MR. CARLIN recalled that the administrative process was brought up. He explained that the administrative process includes things such as running a newspaper advertisement, drafting notices, making copies, and office filing. If the legislation is amended to require a satisfaction of lien document, the time and work involved with that would be included in the administrative costs. Presently, in Alaska there is no statute that addresses mini-storage or self-storage facilities. The language in Chapter 45, Unclaimed Property, is an antiquated law that really deals with forwarding merchants, wharf and warehouse operators, and tavern keepers. The self-storage industry is a relatively new industry that has come about in the last 25 years. The Unclaimed Property statute involves judicial proceedings and action by peace officers, which would be cost prohibitive and impossible with which to comply. MR. CARLIN noted that another possibly relevant statute may be the Improvement Lien on Personal Property. However, he related his belief that the aforementioned statute doesn't apply to self-storage units because there is no improvement done to the property. Without any legislative guidelines, the facility operator is at risk for lawsuits without any authority to dispose of a tenant's property. Additionally, HB 277 provides steps for notification for delinquent tenants, which would standardize the procedures for all self-storage operators in Alaska. Hopefully, this would provide a degree of legal protection. Also, this legislation serves the delinquent tenant better than the current situation. [Currently] there is no requirement of notification that the tenant's property is being disposed of, which would be required under HB 277. Furthermore, HB 277 requires notification of disposal of property via the mail as well as broad newspaper notification. For these reasons, Mr. Carlin encouraged the committee's support of the legislation. Number 0479 REPRESENTATIVE DAVIES requested that Mr. Carlin comment on the release of recorded liens under the current situation and the concern with being required to provide the release. MR. CARLIN informed the committee that he has only had one tenant request a satisfaction of lien. Due to the infrequency of this, it isn't a major issue, he said. The [satisfaction of lien] isn't a great burden; it requires going to the recorder's office and filling out paperwork that is mailed to the tenant. MR. CARLIN, in response to Representative Rokeberg, confirmed that most of what is unclaimed doesn't have any real value and ends up going to a charity. In further response to Representative Rokeberg, Mr. Carlin stated that he has been in business since 1984. REPRESENTATIVE ROKEBERG asked if Mr. Carlin has had any experience with tenants who are part of the military. MR. CARLIN replied yes, and informed the committee that about one-third of his customers are military. In his experience, military folks usually know in advance when they're going out on maneuvers and thus they pay in advance. He noted that he does what is possible to accommodate military customers, and he even offers military customers a discount. In response to Representative Rokeberg, Mr. Carlin said that he hasn't had any problems with his military tenants. MR. CARLIN, in response to Chair Murkowski, specified that the costs at his facility would be fairly representative of those in Fairbanks. He informed the committee that his smallest unit is $27 a month, a medium-sized unit is about $60 a month, and the [largest] size would run about $95 a month. He confirmed that he requires a $15 security deposit so that he wouldn't have to face the cleaning [costs] for things that a tenant decided not to move. Therefore, the security deposit is essentially a cleaning deposit that is returned if the unit is vacated in the same state in which it was rented. Number 0245 CHAIR MURKOWSKI asked if the delinquent tenants with which Mr. Carlin has had experience were delinquent for many months. MR. CARLIN answered that in the past he has held properties for six months to a year, sometimes because the weather doesn't allow for disposal. Mr. Carlin related that frequently tenants abandon their property because the property being stored isn't worth the value of the rent owed. Number 0078 CHARLES BROBST, President and CEO, North Pacific Auctioneers Limited, testified via teleconference. Mr. Brobst informed the committee that for a five to six year period, his company did over 90 percent of the storage auctions in Anchorage. With the changes to the code, the interest of the renter and the warehouse must be kept in mind equally. Section 34.35.600(b) provides the owner the ability to have some leverage on the renter. However, when the unit is over locked, the facility owner should send a registered letter, return receipt requested, to the renter stating that the renter is in arrears ... TAPE 02-53, SIDE A MR. BROBST turned to Section 34.35.610(b)(2) and Section 34.35.620 require publication of notice one time in a newspaper of general circulation. He stressed that one time isn't enough notice. He suggested publishing the notice once a week for a two week period in a newspaper of general circulation in the town where the storage facility is located. If there isn't a newspaper of general circulation, Mr. Brobst suggested four notices posted in a public location one of which would be the post office serving the area and the other being the storage facility itself and then two other general locations. This notification should give the date, time, and location of the sale and also the amount owed plus reasonable disposal costs and related fees. Number 0127 MR. BROBST moved on to Section 34.35.630 and characterized it as a license for the facility owner to steal. When a facility owner takes possession of the property, he questioned who would determine whether the property is salable or not. A disinterested third party, such as a certified auctioneer or certified appraiser, should make the aforementioned determination. Although having a disinterested third party make the aforementioned determination will be an additional cost, a good sale [will allow the facility owner] to recover that cost. Mr. Brobst informed the committee that he has had [the property] in units bring as little as $5 and up to $28,000. He related the various types of property he has found in units that fell into delinquency. MR. BROBST specified that when the over lock is done, the notification should begin with a registered letter specifying that the property will be sold. When the 60 days have past, provide [the renter] a date, time, and place where the property will be sold. If the property isn't sold on the specified date, time, and place, then the process should start over. He emphasized that too many of the auctions in Anchorage specify that the auction will occur "on or after" a certain date. Mr. Brobst said that he attempts to return all of the personal papers and photographs of the [delinquent renter] via the facility owner. Furthermore, these individuals are allowed to purchase their items at the auction. Mr. Brobst also emphasized the need for the property to be sold at the location of the storage facility. MR. BROBST mentioned that sometimes facility owners take a partial payment and don't apply it to the bill but rather hold the partial payment until the property is sold in hopes that there will be enough to cover the bill. Mr. Brobst said that when a partial payment is taken, the facility owner should start the notification procedure. Personally, Mr. Brobst stressed that a partial payment shouldn't be taken unless the facility owner knows that the individual is acting in good faith and attempting to get caught up because after 30 days an individual is too far behind to get caught up. With regard to the [facility owner] not following the procedures, Mr. Brobst related his feeling that the [facility owner] should face a felony and the facility owner and manager and auctioneer should be held liable. He noted that there are some storage facilities in the area that he won't do auctioneering for because of their improper notification. Mr. Brobst concluded by offering to fax the remainder of his testimony to the committee. Number 0556 MR. BROBST, in response to Representative Rokeberg, said that an outcry auction isn't required currently, although in order to obtain the "best bang for your buck" one would perform an outcry auction. Without a disinterested third party [determining the salability of the property], the legislation opens the process up for abuse by unscrupulous managers. Mr. Brobst reiterated that an auctioneer or certified personal property appraiser would be an appropriate disinterested third party. He also reiterated the need for "falsification" to be a felony. REPRESENTATIVE ROKEBERG pointed out that although some of the smaller communities might be large enough to have a storage facility, the community might not have auctioneers or appraisers available. MR. BROBST suggested that a magistrate, notary public, or some other prominent official in the town could possibly determine the value of property. Number 0754 STEVE CONN (ph) testified via teleconference. He noted his agreement with Mr. Brobst. Mr. Conn said this would be a poor time to weaken the present law. He agreed with the suggestion for a registered letter [of notification]. He also agreed that a disinterested party other than a certified appraiser or auctioneer could sign-off in order to ensure value. Mr. Conn expressed the need for the committee to think of their constituents who, in times of need and crisis, use a storage facility and may well lose track. Number 0861 DENNIS HARRIS addressed the question regarding what happens to the property of individuals in the military when their absence is due to overseas duty. Mr. Harris recalled that there is a federal law called the Soldiers and Citizens Relief Act, which prohibits seizures of property with liens and foreclosures on mortgages while someone is stationed overseas in the military. CHAIR MURKOWSKI recalled that shortly after the September 11th tragedy, relief was given to those in the active military. MR. HARRIS informed the committee that almost every time folks are called for active duty with the National Guard, there is almost always a news release reminding everyone of the [prohibition of seizures of property with liens and foreclosures on mortgages]. Number 0947 REPRESENTATIVE KOTT asked if Section 34.25.630(c) is already in statute. REPRESENTATIVE DAVIES replied no and pointed out that there is no statute that applies directly to this circumstance. REPRESENTATIVE KOTT questioned why one would want to make the facility owner the beneficiary of any excess money. For instance, excess money from disposal of property at the state level is forwarded to the Department of Treasury. REPRESENTATIVE DAVIES related his interpretation of the current statute that the facility owner can sell the property and keep the proceeds. He explained that current statutes say that the proceeds of the sale are applied to pay the expenses, to the discharge of the lien, and the balance to the owner of the article, in that order. There doesn't seem to be a provision with regard to what happens when the owner can't be found. CHAIR MURKOWSKI noted that she has identified several areas that need work, and therefore she announced that HB 277 would be assigned to a subcommittee. She announced that Representative Halcro would be the Chair and she as well as Representative Hayes would be members of the subcommittee. MR. BROBST, in response to Representative Halcro, agreed to forward his suggestions to the subcommittee. [HB 277 was held over.]
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